Say you had $5,000 due for one quarter but you only paid $4,000. Is your penalty calculated on the $1,000 underpayment or some other way?
It would be calculated on the amount of underpayment. So the 1000. Friday night I am going to put together a sample return just to see how well Kiplingers can handle MTM accounting. When I do, I will post the results With ES made and then Without ES made assuming you just wanted to stroke a check on April 15. That way you can get a basic idea of what the penalty would be. Again, assuming you just aren't trying to float cash, you can look at annualization and this will often wipe out penlites if your income flow is inconsistent through the year. And remember taxes brought down Capone
I took a look at form 4797 on Turbo Tax Deluxe....not much help here...looks like everything would have to be manually done. Also not much help from Quicken home and business either. They only help when it comes to downloading into your schedule D. If your a Mark to Market trader then this is of no value to you. You do not want things calculated off of schedule D. If you just wanted to download all your trades as an attachment it won't let you do that either. Somebody has to have a software package that can handle this stuff. Quicken is slow to respond to request for anything and they are very protective of their stupid .gif files. You would think that Quicken and IB would get together to solve their downloading problems especially when it comes to how quicken handles shorts. They advertise that you can download using quicken but don't bother to tell you about the nightmare you will have with correcting everything manually. Now because you have purchased Quicken and Turbo Tax thy have you. Its not until later that you realize that the import from IB to Quicken does not work, won't handle shorts and you have to fix everything manually. As a matter of fact, your better off imputing everything into Quicken manually to start with...which is what I wound up doing! Next, you want to take want to take all your trades that you put into Quicken and download them into Turbo Tax. But guess what...as far as I can tell it will only populate your schedule D for you ....furthermore it won't handle wash sales...you have to go in and manually fix all of them too. If you are a Mark to Market Trader you do not want to use schedule D...everything should be tied to form 4797...and there is no allowance for this either except again to manually input this stuff yourself.....what a rip off between IB, and Quicken/ Turbo Tax. They tout all this stuff but it all works together like @$#%^$).
Ok, I finished the test return for our friend Trader Joe on Kiplinger's Tax Cut. I used 80,000 as the short term income on 4797, 10,000 of Schedule C business expenses and 2000 in Health insurance premiums. I did look at an older version of Microsoft Money 99, there was what looked like an outbound link to Excel. However, it did not seem that the link could import from Excel to Money. This may have changed with later versions, don't know. Additionally, I looked at Quicken and the QIF file, again a 99 version on my system. I also looked at Excel for Dummies, no help on converting excel to qif. So at the end ot the day the return would from what I can see would have to be done by hand. Results of the test were not too good if you are not prepared to do some plugging of numbers. And if you don't understand the tax laws it would cost you some money. Here is what happened. The $10,000 of business expenses flowed to the 1040 as a LOSS. The $80,000 of short term trades from 4797 also flowed to the 1040. The total income was reported correctly but this poses a problem. Because the business income is a negative (10K), the $2000 Health Insurance Premium of which 60% could have been deducted from income was disallowed. The end result was income was overstated and tax due was overstated. Total Tax Due $16788 Next I dropped the $80000 from the 4797 on to Schedule C to make the business income correct. Since the system still carries the $80k to 1040 I had to override the system and plug in a 0. At this point the income of $70,000 was correct. But this presented a second problem in that the system calculated Self Employment Tax from the Schedule C income. As short them capital gains are not subject to SE Tax, this overstated the Tax Liability. Total Tax Due $22027 OK to get the return as close as I could I left the above return with the 4797 flowing to the Schedule C as business income. On form 1040 I plugged LINE 27 with a 0 (this is the deduction for 1/2 of SE tax) I also plugged LINE 53 with a 0 (this is the SE Tax itself). This allowed the additional deduction of $1200 for the health insurance premiums paid. This brings our tax liability to $13497. If you waited until April 15 to pay the tax the late penalty in each of the above scenarios instead of making Quarterly ES the penalty is $528 which is added to any of the above amounts. This was just a rough outline and I left off lots of other deductions like kids, state taxes, donations to charity, etc. But at the end of the day it was not a real impressive display from our friends at Kiplinger. I am sure that all of the other software packages have similar "BUGS", but it does pay to have an understanding of how things should flow. Hope everyone has a nice weekend.
TRDRMAC, Good work and good report...thanks for taking the time to do all of that ...I am sure we all will benefit from your efforts. I found Turbo Tax to be pretty similar to your experiences with kiplinger. I am going to start a new thread just for Taxes for Traders. I hope that you and others join...I think the title how often does traders pay taxes is not broad enough to cover the topics that we have gotten into here. I think some people may miss some valuable information because of this. On second thought maybe I' ll wait and see what you guys think the name of the thread should be...I think that the name should cover subjects or ideas with the following: 1. Doing your taxes 2. Software 3. Problems 4. Claiming Mark to Market 5. Tax laws 6. Helping each other 7. Rating system 8. Links 9. Help with your taxes 10. Many other things I am sure you all can think of. Threads come and go ....some get lost , while others resurface. I'd like your help to create a permanent one...with the help of Baron....then maybe some deeper catorization...in EliteTrader we have guys who are tax accountants, lawyers and people with their own school of hard knocks experience I'll be the first to admit that I can trade alight, but when it comes to taxes I'm a dumb....I resent this....I will learn...and I will help others. Won't you join me to this end and help create a place for traders to go to for help with not just trading, but for taxes. Some of the names I have thought of are: 1. Tax Help 2. Traders Tax Info 3. Taxes for Traders What do you guys think and how do you think we should approach baron.
Some random thoughts: Well, the main forum is called 'Self Employment' and taxes are certainly part of that, but does everyone that trades do it as a business (taxwise)? Some people may chose to submit their trading activity soley as personal activity rather than business, no? Also: Any tax topic that doesn't name a country would be assumed to be a discussion about US taxes, but for other countries they should make note of the country in the title. Mr. Toad
I am willing to contribute anything that I can to help others as I think this is part of what the community is about. What I see though is in the THREAD form questions and answers get buried. Personally, I am sure I have answered similar questions multiple times. If it were set up as a page links could be posted to IRS publications so people could reference things like home office deductions, ES payments, health insurance, or what ever. Although, this presents a problem to keep clean as you will get things like links to the constitution showing taxes are unconstitutional etc. And some may be just as confused as when they started due to the dearth of consistent answers. Good trading this week
Toad 57 and Trdmac...you guys have brought up some good points. Lets try to come up with a page and layout that we think will work and then approach Baron. How about this:? Main Title..........Taxes Sub Titles: US Taxes Foreign Taxes Links Taxes for Traders Step by Step Personal Tax Experiences Tax Software I just threw these out...feel free to add or remove anything...maybe we can refine this down to encompass the things we need. I don't think its going to be easy...but if we get our heads together maybe we can come up with something decent in a few days.