It's that time of year - would appreciate your thoughts on a few tax questions. I really enjoy this thread and have learned a lot (especially the last 3 - 4 pages) - incredibly talented (linguistically) bunch. OK - been trading for a long time, but this year (tax year 2005) is my first year filing under my LLC. First and main question is - should I elect mark-to-market? Will the have any impact on a SEP contribution? Would appreciate any help or advice
small world.. I know Okayama...I was a blue eyed/strawberry blond little girl ...mom sis and I the only Gaijin in Kashiwara (near Nara)...went to Japanese 1st grade. Left Japan at 16 and didn't return for 30 yrs...I was actually suprised at how well I remembered the language...lost a lot of course but when you learn as a child you really don't forget it.
Well, I'm not a tax expert (which is the same response that you will get from most people here) but I can tell you that it depends (the other answer that you are going to get here). First off, the SEP contributions are treated just like a traditional IRA. So anything that would apply to the latter will also apply to the former. As far as mark-to-market goes, it really depends on what kind of trading you do. First you need to make sure that you qualify as a trader. Secondly, the fact that it is an IRA already eliminates many of the tax concerns. If you elect mark-to-market your gains will be treated as normal income and be taxed as such. Really there are two main advantages: 1) The $3,000 loss rule doesn't apply to you. If you lose $100,000 this year, you can write off $100,000 next year. Hopefully this isn't a problem for you anyway. 2) The wash sale rule doesn't apply either. If you have a tendancy to get in and out of the same position within a 30-day period, then it might benefit you to elect mark-to-market. If you trade mainly 1256 contracts (broad based index options) these are already cash settled and the wash sale rule doesn't apply anyway. They also already get preferencial tax treatment. As I understand it though, you have to make the election the prior year. IOW, you'd now be making the election for 2006 not 2005. But, in your case I think you can make the election for 2005 as this is the first time you are filing under the LLC. Just remember that once you make the election they don't really let you switch back and forth. One question though, is this a trading LLC that you created or is it a different LLC and you have custody over the funds and can therefore trade them? If you created an LLC for trading I would recommend that you trade under a C-corp as there are more advantages businesswise(as long as you don't pay dividends to yourself).
One more thing since this seemed to be Donna's day in the barrel...if I had any REAL money I wouldn't be littering up these boards! When you no longer hear from me that means I've hit the jackpot! Have a great weekend...we will be driving home (as opposed to jet setting)
Thanks for the reply. From what I've read, I think I can qaulify for trader status (number and frequency of trades, holding period, time spent, etc) even though I still hold a "regular " job (hope that changes this year). You're correct, I believe that since this is my first year with the trading LLC, I can elect M2M and still get the election. The LLC was created specifically to trade under. I have considered creating a C corp that "manages" the LLC (charges a mgmt fee to the LLC) - I get the best of both then. Did you elect M2M or cash? Are you trading under a C corp? Thanks, Bob
No I didn't elect M2M yet, and yes I trade under a C-corp. I prefer the C-corp to LLC and S-corp. I used to prefer the latter two but have since changed my preference.
did you move to a "C" from a LLC oe LP? I may hold off with the M2M election this year until I know more - I coud luse t heloss this year though rather than just the $3K.
I actually created a different C-corp. If you change an LLC/S-corp to a C-corp you have to use the calendar year as your fiscal year. I prefer to have my fiscal year different than the calendar year. Just remember that if you trade a lot of 1256 contracts it might not be a good idea to elect M2M.
Does he speak like riskarb--when he writes about option positions, I wish I had really learned Greek. About Cottle's new book, "The Hidden Reality," what percent of it is new material compared to "CWS", Coach? I guess it is worth having, especailly since all graphs are in color. http://www.amazon.com/gp/product/09...102-3617021-0414541?s=books&v=glance&n=283155