Are options taxed on the underlying instrument (equity / future)? ie are stock-options taxed like stocks, and future-options like futures? TIA.
yep, no "trader staus" for you. Not allowed unless trading is your full time job. Income from another job will disallow this, unless it is a very insignificant amount. Buy Robert Green's tax book for traders. try an author search via Amazon. I have not read it, but have heard its about as detailed as you can get for futures traders (Ted Tesser does more equity tax stuff). Robert Green can also DO your taxes, but he'll charge ya. He is a tax guy, not just an author.
A lot of dangerous erroneous information being thrown around here. I would like to address a few of them. 1) You donât file for trader status with the IRS. Either you are a âtraderâ or youâre not, depending on your individual facts and circumstances. And there is no way to ask for a Private Letter Ruling. The policy is not to rule on questions of fact. 2) There is no benefit to trading inside an LLC (Limited Liability Company). First of all, if you are the only owner of the LLC, it is generally treated as a disregarded entity. Thus, as far as the IRS, and your own State tax authority is concerned, they will not even acknowledge its existence. 3) There are many problems associated with setting up an offshore entity. Before doing so, two very dangerous rakes in the grass are: A) Foreign Personal Holding Company B) Controlled Foreign Corporation This is not the place to get into that very complex subject. Just stay the hell away from the offshore bit. T.A.P., I am assuming that even though you are not a US citizen, that you are a resident of the US. In this connection, the term "Resident" is different for tax purposes than for Immigration Purposes. There is a tax rule that treats persons who do not have US Immigration status as "residents" for tax purposes based on the number of days physically present in the US during the most recent 3 year period. If you are neither a citizen nor resident of the US under tax rules, then disregard everything I have said in this Posting. 4Q.
exQQQQseme, He might have meant MTM 1256 status. MTM does require filing but in the case of trader who solely trade futures/commodities, it voids the favorable 60/40 tax rate. For regular stock/option trader, you should definitely file MTM status. I've got a question since this will be my first year filing as a trader and I plan to do it myself. I only trade futures in my account and received the 1099 with the single PnL from IB. Since I don't file trader status with the IRS, how do they know that I was a full time trader? Should I include a note? Another benefit of trading futures besides 23% tax rate is not having to file a breakout of every single trade like you have to do with stocks. But since it's a single line showing PnL, how does the IRS know it wasn't a one time gain? I traded futures full time for 10 out of 12 months last year and it was my main source of income for that time.
4Q - I am a resident for Immigration purposes therefore I will take on board your comments. So to summarise, what Im gathering is that there is no tax benefit to me trading as a legal entity (LLC etc), registering as a (futures) trader with the IRS makes no difference at tax time, and the most I will be paying in tax is 23% regardless. If this is basically correct then I can consider my question answered. I will still read the recommended book. Thank you all for the input.....
Lwlee, when one is trading Section 1256 Assets (example: regulated futures contracts), it doesn't matter whether they are a trader or not, the Mark to Market treatment is MANDATORY. It is not ELECTIVE.
TAP, if you are a US resident for Immigration Purposes, you are also a resident for tax purposes. The US income tax rules apply to US citizen and residents alike. 4Q
4Q - Correct. So my summary is accurate then, to the best of your knowledge, as these rules apply to me as though I was a US citizen?
lwlle very good question. how does the irs know if a futures trader is full time when he only recieves a 1 line p@l? i'd include a note saying you trade full time if you write off any exp's. as far as mtm goes i file mtm for stocks only and specify i'm not mark to market with futures. ib now includes a sch d for every trader so no more line by line accounting headaches for stock traders. i think every broker will do this soon
exQQQQseme, Excuse me, I got the different MTMs mixed up. I was refering to MTM 475 as requiring filing. 475 is better for non-futures trader. 1256 doesn't require filing but it's not as efficient in treating NOLs.