Tax on trading income

Discussion in 'Taxes and Accounting' started by mc107, Apr 1, 2006.

  1. mc107


    My wife and I formed a general partnership for our trading business. Let's say we made $100K in trading last year and incurred about $10k in expenses. When preparing the form1065, I found that the net earnings from self-employment comes out as negative, although we made net $90k. In other word, we didn't convert any trading gains into earned income after all. What is wrong with my calculation? Our accountant does not know how to handle the issue either. Any hint?

    Many thanks,
  2. - Tax for Traders
  3. lol why did you form a husband wife partnership? are you trading a jt account or 2 serperate individual accounts. i'd highly doubt both of you trade but starting in 2002 they changed the law were both husband and wife had to be traders to do a sch c. are you mtm? is your wife? i simply did seperate sch c's. my wife's no longer a trader so i just do it all udner my sch c. the reason you're showing a negative income is because you must transfer whatever your sch c expenses over from you income. if your expenses are 10k transfer 10k of income from you 100k and your sch c shows 0. go to greentraders site and you can buy 5 examples of trader tax returs for $60 or so and give them to your accountant. i used green for a few years and found and accountant and educated them opn how to do it. it's pain in but using far off accountant
  4. mc107


    Thanks Bighitter1 for your suggestion.

    But how do you transfer 10k of trading gain to schedule C to offset the expenses?
  5. exactly what I wonder because trading gain is capital gain not ordinary income.. imo you cant transfer capital gain
  6. lakefront


    I would also recommend green & company. I had the same situation and they walked me through what needed to be done. In regards to the schedule C transfer I don't believe this will work for a general partnership. The general partnership reports all income & expenses on the partnership form 1065 and then flows down to the individuals on the K-1. There is no Schedule C associated with the partnership. The schedule C transfer can be used if you are operating as a sole proprietor.
  7. go buy greens tax examples. the transfer of income is explained ina footnote. i'm sure you can do the same think with a partnership as you can transfer from form 4762 mtm form. the transfer is just shifting the income so your sch c isn't negative. it's not really a transfer jsut an accounting procedure to not have a negative sch c.. green's the grandaddy of trade tax returns. he uses pages of footnotes to explain to the irs everything from what a trader is to that a trader pays no social security. the foootnotes head of any problems down the line
  8. Green has a feature article on footnotes in this month's Active Trader magazine (May 2006). Also be sure to check out his reply to a letter on page 11 where he gives specific instructions on how to transfer gains to Schedule C.

  9. Hi...yes, Bob Green can certainly help you. I don't think the partnership makes any sense, however...if you have a "trading business" then treat it like any other business as a sole proprietorship.

    Our traders are taxed as ordinary income, do not have to match trades up, and are exempt from all self-employment you save 15% right off the top. Taxed on "triple net" with just a single number to pick up from a K-1.

    If you decide you want to take your trading to the next level, be sure to let me know. Send me PM if you like.

    If not, say hi to Bob Green for me (you'll see me on the back cover of his book, so I do think he's pretty sharp).


    (The above is not to be construed as tax or legal advice, and has nothing to do with Bright Trading or any of its' entities or partners). Personal suggestions only.
  10. Mr Guest

    Mr Guest

    Any CPA's out there know why Green transfers money to the schedule C to "zero" it out? Is it necessary? The IRS website doesn't say to do it that way. A trader-tax savy CPA I spoke to a while back said it was not needed. It seems that Green is the only one advocating this method. Who is right? Thanks.
    #10     Apr 4, 2006