what if he had lost $60k at lightspeed? does it mean he can deduct 3k every year for the next 20 years? or is there a limit?
First, I should tell you I am not a CPA or a tax professional but I've been around the block a few times and I believe your accountant is correct because a 1099-MISC qualifies you as a private contractor and as a result, converts your income to "earned income" rather than Capital Gains income. As you know, you can't write off a capital gains loss against earned income so the best you can do is deduct the 3k loss for the next 8 years and 1k in the 9th. The good news is you can use this deduction to reduce future capital gains profits. Did you pay Social Security and Medicare on this 1099 income? If not, you were probably supposed to. One of the reasons employers use 1099 contractors is to shift the burden of paying SS and Medi to the contractor. Trading firms are notorious for this. They view themselves more as brokers than they do employers. It never hurts to get a 2nd opinion but I believe your current accountant is correct.
There is no limit to the number of years you can carry forward a capital gains loss. In this case you can deduct 3k for the next 20 years.
I think your right, Fortunately it's not too late to set up a M2M account yet for the year. That's what I'll be doing. Thanks for your help
Cody was a great guy. Took the time to talk to me and help me with the issue. Seemed incredibly knowledgable. I would recomend him.
Maybe you have a different setup from what I am thinking, but for an individual you had to declare mark-to-market accounting by April 15, 2009 to have it apply for the tax year 2009: http://www.fairmark.com/traders/mtmacc.htm
I've been down the M2M road before and you have to be careful how you proceed down this path. If you're not careful ALL of your accounts will be lumped into the M2M designation when you may not want them to be. If you have a different account that you use for long-term investing it will become an M2M account as well and you will have to mark-it-to-market each year and pay short-term taxes accordingly. There are ways to avoid this so be sure to get some professional help before you go this route. And to the other poster who posted you have to file it before 04-15 I think he is right. I don't believe you can make it retroactive.
An LP is the mother of all tax deductions. I think you'll like the tax treatment of this entity. He probably mentioned you need at least one other person to form this business entity. Be sure to choose someone you trust, preferably a spouse or family member. It sounds as though your accountant is well versed in tax law and business in general.