Guys: question for you tax experts and/or CPA's .. I am trading my account and my friends account. (I am trading the ES) My friends account is in his name and I am trading it through a power of attorney, which means he is getting taxed on all the profits. I am getting 50% of what I make in his account. Here is the question .... If I make lets say $ 5,000.00 for the year in his account, I will receive $ 2,500.00. He will be taxed on the entire $ 5,000 ... can my friend issue me a 1099 for $ 2,500.00 and be able to reduce his gain on his IRS form 6781. Any thoughts ??? thanks for any suggestions !!
umm, aren't you paying tax on the other half somewhere? And if you receive the 1099, you will pay at regular tax rates. Why not have him just pay the taxes on it all as cap gains, and give you half?
Just think of it as a "test" of your friendship to see if your friend pays you what you expect to get.
I guess it depends whether the friend wants him to trade the account into the future... Personally, I think it is a bad idea, trading a friend's money. One bad hiccup, and you have embarrassed yourself and perhaps ruined the friendship. Now, imagine that is your sister... Also, many traders who wander onto this forum have an unrealistic sense of thier self ability to trade. Something works on paper, or 6 weeks of trading real profits, and suddenly they are a guru who plan how they can start a fund. Little things like Profit Factor, Risk of Ruin, Sharpe, money management, proper leverage, potential Max drawdown, and other critical stats are often lost on these future Donald Trumps.
Don't worry, taxes are charged on profits. Traders don't profit. At least not in the long run. What you should worry, is how you'll tell your (for now) friend about the losses.