There are definitely some major advantages to MTM for equities traders, like the big one you pointed out. This is exactly why the IRS is being so harsh to traders because instead of just being able to carry forward $3k in losses each year, those with MTM can claim huge refunds in certain cases. So the IRS says, hey we donât want to give back all this money right now so letâs prove this guy isnât really a Trader in Securities and then he canât use MTM.
i am just telling you how it was done when i did mine years ago under the direction of green tradertax.
Understood, they like to double cross their Tâs and double dot their Iâs. There is no IRS form to declare or renounce Trader status as there is for MTM. Trader status is something you choose to use or not each year just like any tax credit or deduction you are qualified to take. There is no need to form an entity for your trading, but it makes it appear you are more serious to the IRS. There is no need to send a personal letter to the IRS saying you are using Trader status, but they think it a good idea. This all goes to the concept of appearance because there are no hard and fast rules for who is a Trader and who is not, just guidelines. So you can choose Trader status one year, then not the next, then use it again the following year and the whole time never write any letter to them telling them because that is how the IRS set it up. But does that make you appear like a pro trader or not? It is an appearance vs. actual requirement argument.
opt above is correct. trader status is a designation you make were mtm has to be declared in a letter to the irs by april 15th of each year for the current year. one can elect mtm for stks but not for futures and keep the 60/40 treatment. the person who said an entity like a llc does not pay social security taxes on stock trades is dead wrong. all income that passes threw a llc is considered income. but on the other side you can write off your health ins and retirement plan. those are the facts.
Folks, will appreciate your comments on my situation. I formed an entity and will begin trading in 2010. So for my entity, there is no tax return to file for 2009. My question is how to claim MTM for my entity for 2010? Do I need to send a letter/form to IRS by 4/15/10 to claim MTM? My CPA said I don't have to because my entity is new. All I need to do is to put a note in my file claiming MTM without sending anything to IRS. Was my CPA correct regarding claiming MTM for new trading entities? Thanks.
Well, after a little digging from IRS's website, I think I found the answers to my own question. Internal Revenue Bulletin 1999-7 at www.irs.gov/pub/irs-irbs/irb99-07.pdf (2) New taxpayers. A new taxpayer is a taxpayer for which no federal income tax return was required to be filed for the taxable year immediately preceding the election year. A new taxpayer makes the election by placing in its books and records no later than 2 months and 15 days after the first day of the election year a statement that satisfies the requirements in section 5.04 of this revenue procedure. To notify the Service that the election was made, the new taxpayer must attach a copy of the statement to its original federal income tax return for the election year. .04 Required statement. The statement must describe the election being made, the first taxable year for which the election is effective, and, in the case of an election under § 475(f), the trade or business for which the election is made.
So you formed an Entity? which one did you go with? on your own or through the CPA? Has anyone used Greentradertax.com for their CPA service? wondered if they are any good. I need to form something this year . did 165K in gains but yielded $55K in losses. so I'm stuck paying taxes on too much in losses. going to offset it with IRA contributions and charity stuff, but still if I chose M@M I could have deducted all those losses! my major loss was SRS early 2009, never trade that thing again!
kev - you should be paying taxes on 110k (165 gains - 55 in losses) MINUS normal deductions (contributions, IRA, etc.). don't remember where the IRA deduction line occurs at.
I can only deduct 3K of those losses as capped by tax laws. I trade as a stupid individual who didn't declare M2M earlier in the year. I retained a CPA in November and have yet to go into detail over the numbers and setting up an entity and m2m