Trader status does not prohibit you from taking 60/40 tax benefits of futures. Only if you declare mark-to-market for commodities trading will you deny yourself the 60/40 tax benefit. I am not sure why anyone would want to do this. Is there a good reason that I am missing?
One basic example: Taxpayer has no capital loss carryforward from 2005 into 2006. He qualifies for trader status. He gets a huge severence bonus in January 2006 and uses the money to trade futures with. Significant futures losses are incurred between January 2006 and April 15, 2006. By electing Sec 475 M2M those losses are converted from 60/40 capital losses into Ordinary losses.
Suppose you are a fortunate futures trader and you have no losses on a yearly basis. Is there any reason to elect mark-to-market on commodities trading?
Yes , I have mark to market. I have a seperate acct dedicated to this business. The reason's are as follows: 1) This was set up prior to trading futures. With stocks/mark to market, I am able to trade without worry of wash sales rules. 2) All of my expenses, seminars, trading, (between software for platform, scanning, charts, data stream) you are looking at over $250 per month, not including cable (broad band) and other computer related expenses can be expensed on Schedule C. Also included are any margin expenses, note: instead of having it on Schedule A as a % of AGI. 3) Although I submit an itemized listing of my trades, my gains which are income instead of capital gains go on the 4797 form (in essence, Bought/Sold/loss or gain in total. Once I make enough $$ on 1256 contracts, than I will have a seperate account that will allow me to work around the mark to market declaration. Off course the Ira and UGMA situation is different, and I have no idea what to do. There are only a few CPA's that are even aware of the nuances of trader, and mark to market status.
Mark2m, I believe that you have mentioned several misconceptions of the Commodities Sec 475 M2M election: how to make it, when to make it, what it is required for. It sounds like you have confused the §475(f)(1) election with the §475(f)(2) election, perhaps? Also you may have confused trader status with the §§475(f) elections ... and Sec 1256 reporting with other capital gain property reporting. While it would be too much to discuss in any more detail here, it might be advisable to double check with your tax advisor what has been done, and then file amended tax returns, if appropriate.
I am unsure if you misconstrued my declaration. First I declared trader status with the IRS. I filed the following: Sent a letter to the IRS indicating that I wish to elect markto market, under section 475(f) of the Internal revenue code.(did this two years ago) 3115 - which indicated request for accounting change. On my 1040 - I had the accts identified as a trader/mark to market reported as 4797 gains or losses, Schedule C for expenses. This year I have started to trade in Futures with the above acct, and since I have elected mark to market, my understanding is I cannot participate on the 60/40 cap gains of 1256 contracts. Earning would be strictly as income. If I am mistaken on the above matter, please advise. Thank You.
Yes, you appear to be mistaken. Most importantly, Sec 475 trader M2M is not elected by means of sending a letter to IRS. Recent published positions indicate that IRS is being very firm on this. IMO, you should discuss these issues with your tax advisor sooner, than later.
mtm you must have an incompetent accountant who knows nothing about trader taxes. the letter you send in is just a declaration of wanting to elect mtm. the reason being is if you wait till year end and know you ahve a loss you screw the irs. the irs says make it by april 15th so you don't know you ahve aloss. but jsut becasue you elect doesn';t mean you ahve to do mtm. mtm is actually done with form 3115when you file your taxes. you send one in with your retunr and one to the irs in washington dc. if you hear nothing back no problem. when you elect mark to market you clearly state FOR SECURITIES ONLY. so your commodities are not under mtm and taxes at the more favirable 60/40 rule. you also can designante long term stock accounts for the more favorable long term tax rates.get a trader tax accounatant like robert green to help you
talking about accountants, I am now close to get at breakeven with my precedent losses dating a few years back. So far I have not paid taxes on my capital gains for obvious reasons and therefore never bothered to check what could be soon my new exposure to taxes. I live in london and if I am not wrong the first £15000 per year are not subject to taxes (even if always been in the black) is it the case? And what can be done to minimize tax. repayments when my profits will exceed that amount? I'd be glad to get a pm from anyone trading and living in London who has sorted out this mess and who's willing to help me. THX in advance PP
You elected to declare yourself to the IRS as a "trader" (not the other way around?). Why?, so you can expense $250/month? ($3k/year)? plus what, another 2k for seminars, etc..? $5k / year? $10k /year? What am I missing? Have you done the math? By flowing the expenses thru your Schedule C don't you also pay "self employment tax" ... 12.4% (max ~$14k) and Medicare ~3% on all your income? in addition to converting all your longterm cap gains into "income" taxable at 35% marginally? see Self Employment Tax Schedule C: http://www.turbotax.com/articles/TheSelfEmploymentTax.html?source=ttcom4home1#_What_is_the I must be missing something here on this. The Mark to Market is a completely seperate issue. ... back to the original point of this thread: a hypertraded IRA may catch the IRS's attention given the assumption they will make that you are dedcuting the expenses used to trade this account thru your schedule C. Now I can see you may have a problem.