The IRS has guidelines about "continuing to quailfy,maintain" your trader status... don't know how or whether they bother to follow up. The regs specify "continuing to quality"... not "once granted, it's a one-and-done".
but i never commented on continuing status the gentlemen above stated from the article that you lose tax advantage of 1256 if you select 475f that sounds logical but may be true or not true the key feature of 475f is that you get offset business expenses against your futures trading on a schedule c to reduce your tax liabily and/or roll losses forward or back to the calendar year but securities get tax at ordinary rates, it's unclear that you lose 1256 tax advantage and i would second guess the article, that is my point, i am not sure how maintaing status is relevant here, you are either trading as a business or not
i see the confusion - continuing status has nothing to do with quarterly reporting, you guys are getting confused here if you elect 475f, you report annually and have to be trader status it separate from the quarterly taxes if you just had regular status.... these are different schemes here
Not exactly. You get to "maintain" status if you do enough of "qualifying business"/trading activity" to maintain. Personally, I think qualifying for Trader Status is much like the circle jerk of accounting for wash sales. Minimal financial benefit for waaayyy more hassle than it's worth, in most cases.... especially of your trading is overall profitable.
Hi Everyone, First off, thank you for the updates and comments. I wish I was certain now but I'm still not. I feel like this is a binary answer, but it appears a CPA must be the one to give it to me with some degree of certainty. My situation, as outlined in the original post is that I "have made no trader status election changes." Nor do I intend to. I ONLY trade 1256 contracts, never securities, and trader status is something I've already researched and decided against. The confusing thing is 1256 contracts are mtm by default, so does the quarterly tax payment requirement go away if you ONLY have 1256 gains? I lean toward paying the quarterly payments out of an abundance of caution, but would rather not if it's not specifically required. I'll try posting on a CPA board or in the tax forum on here and update you all if I get a definitive answer. Again, as outlined in original post for the base case question: no trader status election (no 475) no other income besides 1256 gains no other tax considerations from prior years, owed taxes, rental/real estate, etc -- nothing gains resulting in over 1K tax liability in Q1, 2, or 3 -- must make estimated tax payments? Cheers.
Just look at the tax forms. Suppose you have no other income besides 1256 contracts. Then at the end of the year, you figure out your mark-to-market for those contracts and put them on the appropriate form. Then your income will be X dollars and your taxes for the year will be some portion of that, say 0.3X. Regardless of how you made this income, quarterly estimated tax payments are supposed to be paid to cover that 0.3X and they are supposed to be paid evenly throughout the year. There are exceptions, such as if you made all your money in the last quarter, you can use the annualized income form to make the estimated tax payments backloaded, just like your income. There is no exception to paying estimated quarterly taxes just because your income comes from 1256 contracts.
How certain are you about "paid evenly." If you have no gains in Q1, you pay no quarterly, if by end of Q2, you have enough 1256 gains to push you over the $1k tax due threshold, you pay enough to get back under the $1k threshold. If you then have no gains/losses Q3, no payment, no gains/losses Q4, no payment. Doesn't seem like that is "evenly." I'm thinking pay the quarterly payments, so we're on the same page on that one, although I don't feel like I have a certain answer about it since all 1256 trades are mtm at year end and no dates of trades are reported to the IRS. But I do suspect they want their quarterly payments. I'll post here once I get a CPA's input, ideally one that works with futures traders specifically.
And that's the bugger about it...If your only income is from 1256, then how can you be expected to pay an estimated tax quarterly when you MTM at EOY? I'm in the same boat. My income is strictly from the 1256 (aside from some dividend income which is reported elsewhere), and I don't even have "trader status". I don't trade anything under the security umbrella, only 1256.