I use an accountant. She saves me more money than I spend on her fee. I strongly reccommend you do the same. Nothing worse than being twigged for an audit because you made a mistake!
I agree. I am an exchange member and professional trader, with a good trader's accountant. I know more than a few people who didn't pay social security on their trading earnings, and then got slammed a few years down the road big time. If you are a part-timer with other income, then I don't know what your odds are of having a problem, or even if it is necessary, but if you list trader as your primary or sole occupation, particularly if you are an exchange member, then you are definately liable for FICA. Jessie
As a floor trader, you are a professional, and your income derived from such trading is ordinary income. That is why you get hit with FICA. Traders off the floor, in most instances, are not required to pay FICA as the income is from Cap Gains. I'm a CPA and have gone round and round with clients regarding this issue.
I wish the IRS learned that traders can't estimate their income!!! I just had a call with my accountant and it appears that he's witheld 28k+ less than I need to! That's in spite of sending in 100% of my first quarters profits. Somehow every year my income gets skewed to the end of the year and this year is no different. Can't wait to see the assessment, interest penalty, and no doubt ....another audit. The Bahamas is starting to look nicer everyday.
There is an option for computing your penalty and interest based on when during the year you made your profits. The form splits out your profits and withholding by quarter and compares them quarter by quarter. It can be a money saver for traders with volatile income streams. Ask your accountant about it. If you go this route, you can just pay a big estimated tax amount by Jan. 15th and probably eliminate your penalty and interest bill.
If you pay at least 100% of the previous years tax liablility , there is no penalty for any additional tax owed. Easy to find this info in the Tax docs.
I don't like to say much about taxes here, but you are most likely paying to much. If interested send me PM. Wishing you a prosperous '03
How Taxes Work....This is a VERY simple way to explain our tax laws. > This puts tax cuts in terms everyone can understand. > > Suppose that every day, ten men go out for dinner. The bill for all ten > comes to $100. If they paid their bill the way we pay our taxes, it > would go something like this. > > The first four men -- the poorest -- would pay nothing; the fifth would > pay $1, the sixth would pay $3, the seventh $7, the eighth $12, the > ninth $18,and the tenth man -- the richest -- would pay$59. > > That's what they decided to do. The ten men ate dinner in the restaurant > every day and seemed quite happy with the arrangement -- until one day, > the owner threw them a curve (in tax language a tax cut). > > "Since you are all such good customers," he said, "I'm going to reduce > the cost of your daily meal by $20." So now dinner for the ten of you > only cost $80.00." > > The group still wanted to pay their bill the way we pay our taxes. So > the first four men were unaffected. They would still eat for free. But > what about the other six -- the paying customers? How could they divvy > up the $20 windfall so that everyone would get his "fair share"? > > The six men realized that $20 divided by six is $3.33. But if they > subtracted that from everybody's share, the fifth man and the sixth man > would end up being PAID to eat their meal. So, the restaurant owner > suggested that it would be fair to reduce each man's bill by roughly the > same amount, and he proceeded to work out the amounts each should pay. > > And so the fifth man paid nothing, the sixth pitched in $2, the seventh > paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man > with a bill of $52 instead of his earlier $59. Each of the six was > better off than before. And the first four continued to eat for free. > > But once outside the restaurant, the men began to compare their savings. > "I only got a dollar out of the $20," declared the sixth man, "but he, > pointing to the tenth, got $7!". > > "Yeah, that's right," exclaimed the fifth man, "I only saved a dollar, > too. It's unfair that he got seven times more than me!". That's true!" > shouted the seventh man, "why should he get $7 back when I got only $2? > The wealthy get all the breaks!" > > "Wait a minute," yelled the first four men in unison, "we didn't get > anything at all. The system exploits the poor!" (The Jesse Jackson point > of view) > > The nine men surrounded the tenth and beat him up. The next night he > didn't show up for dinner, so the nine sat down and ate without him. But > when it came time to pay the bill, they discovered, a little late what > was very important. They were FIFTY-TWO DOLLARS short of paying the > bill! Imagine that! > > And that, boys and girls, journalists and college instructors, is how > the tax system works. The people who pay the highest taxes get the most > benefit from a tax reduction. Tax them too much, attack them for being > wealthy, and they just might not show up at the table anymore. > > Where would that leave the rest? Unfortunately, most taxing authorities > anywhere cannot seem to grasp this rather straight-forward logic!