Will lowering your taxes this way work???

I'm not sure if this would be legal but anyway I was thinking of this.

Basically you take advantage of the fact that if you make money trading index futures you pay 60/40. 60% capital gains / 40% ordinary income

1) This must be true... If you make $100,000 trading stocks and lose $100,000 trading the S&P index futures you'll owe 0 in taxes.


so... if you have made 200,000 for the year trading only stocks this is what you do.

Obtain a $HIT load of leverage and say go long 10,000,000 worth of ES futures, and go short 10,000,000 worth of SPY, the stock. Here's what might happen

Scenario A:
the market rallies 2% and you make $200,000 on the ES futures, but lose 200,000 of stock losses. So for the year you had made 200,000 in stock, but now lost 200,000 in stock, but you made 200,000 trading index futures.

So now rather than paying taxes on 200,000, you get the special tax treatment of 60/40 because all your gains were on the index futues.

Scenario B:
your plan doesn't work out, the market sells off and you loose 200,000 on you index futures, and make 200,000 on your stock. So you have made 400,000 on stock, but have a write off of 200,000 on your futures loss which is = to 200,000 you have to pay at ordinary income.


Obviously you want scenario A to happen, however if it doesn't w/ scenario B you end up paying exactly the same amount had you not attempted this

 

Interesting, but inherently false. Ask an expert accountant who specializes in trader tax status.

 

Interesting idea. I suspect that it must be illegal in some way, but I'd sure like to hear how/why.

 

Ummm, this is not true, UNLESS your stock trading business uses MTM accounting. Otherwise, short-term gains are offset against short-term losses. Long-term gains are offset against long-term losses. If short and long term losses exceed all capital gains for the year, a max of $3000 of excess loss can be deducted.

And Im not even an accountant!
Osorico

 

So if do classify as having trader status or we trade through an entity we can elect for market to market. So are you saying that #1 would be true??

 

bump

 

Any financial transaction with the sole purpose of lowering taxes is deemed illegal by the IRS. So what you are proposing, and yes, every trader has thought of it at some point, is not legal.

Could you get away with it? Sure, but with that attitude you might as well just lie on your taxes and no one will notice unless you get audited.

And besides, in order for this scheme to work you'd have to accurately predict the market direction for multiple offsetting trades, cause there is no way you'd be able to get enough leverage to wipe out all your gains at once. And if you could do that, you might as well take the directional trade outright.

 

Might this be considered
"Shorting against the box"?

 

thank you very much