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FF Trader Tax Thread

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  • First Post: Sep 19, 2006 7:16pm Sep 19, 2006 7:16pm
we finally snagged a trader tax expert! we have arranged for Jim Crimmins of Traders Accounting to hosting this thread, where he will feild your accounting and tax questions. please join me in welcoming him to the forum!

here is a breif bio on Jim:

Jim Crimmins is the founder and President of Traders Accounting, a company in the fast growing market of specialized accounting. His responsibilities include creating classes, lectures and Home study courses for small business entrepreneurs.

Jim has become a nationally known speaker on tax strategies, entity structuring, and lifestyle change. He delivers over 30 talks a year throughout America as well as speaking in several chat rooms each month. He lives with his wife and life companion in the Phoenix area, near their six grandchildren.

Jim earned his stripes in corporate America as an executive with several NYSE companies, both as a controller, operations manager, and ultimately COO. After leaving corporate America he taught business principles at a Seattle college, and then decided to practice what he preached and has started and managed four different successful companies in both Seattle and Phoenix. He and his wife own and manage rental real estate in the Phoenix market place.

Jim also worked with one of the largest and well-known educational organizations of the stock market in this country where he became a master on entity structuring and developed a network of experts in the trading arena. He left the company to fill what he saw as a gap in the industry of specialized accounting services for the vast number of traders in the market by taking action and putting into focus his individual beliefs of hard work and business built on principle.
Relax and be happy.
Wow, this is fantastic... welcome to the Forex Factory... Can't wait.

Scott
Knowing that September is not a really "hot" month for traders to think about taxes, we have launched the discussion thread, and while September is not a hot month, it should be the time that each of us is thinking of and asking what we can personally do to lower our taxes for 2006. There are a little over three months left where you can work to make some changes to lower that dreaded AMT, and your regular taxes.

That said, I encourage your questions, and will try to answer them, if I cannot we will find some expert around that can. If you have personal questions that you do not want to share with the forum, then email them to me at [email protected]. All of the exchanges there are strictly confidential.

Here is to your good trading, and the lowering of a traders largest expense, whether he/she makes or looses money in a year.

Jim Crimmins
How does one account for commission costs? In retail it's baked into the spread but on Currenex it is a whole seperate expense. Can those costs be deducted for a personal trader or will it be necessary to move to a trading entity?
Is there a professional organization of tax experts that could recommend accountants versed in trading to handle an account locally? My CPA that I use for my other business does not give me high confidence, in this area.. It seems to be rather specialized... Thanks in advance, Scott
Quoting Trader Tax
There are a little over three months left where you can work to make some changes to lower that dreaded AMT, and your regular taxes.
Jim, can you tell me under what circumstances a trader would incur the AMT? I would like to know what to avoid.
Quoting Darkstar
How does one account for commission costs? In retail it's baked into the spread but on Currenex it is a whole seperate expense. Can those costs be deducted for a personal trader or will it be necessary to move to a trading entity?
Darkstar, thanks for the question, we encourage our clients to add the commission costs into their basis when they buy and sell, thusly making their gains less and their losses more. You can then deduct when you make money and up to $3K when you loose, unless you have elected Mark to Market, or are trading 988 contracts and do not change the nature of the 988's, then you can deduct all of the loss against other income.
Quoting silverpike
Jim, can you tell me under what circumstances a trader would incur the AMT? I would like to know what to avoid.
Silverpike, than you for the question. AMT taxation is quite complicated, but a trader is like any other tax payer when it comes to paying it. I can try next week to get a paragraph or two together on it and post it, unfortunately I am writing this from Las Vegas, and do not have my reference manuals with me, so I might misspeak. Sorry for the delay, but I will try to get you some information that you can count on. JC
Quoting smjones
Is there a professional organization of tax experts that could recommend accountants versed in trading to handle an account locally? My CPA that I use for my other business does not give me high confidence, in this area.. It seems to be rather specialized... Thanks in advance, Scott
One of the most off asked questions. No organization that I am aware of, but what I am aware of is that because it is not economically feasable for most accounts to take the time to learn the nuances of trading taxation, they do not do so. Most if you ask them will be honest and tell you they do not know, however we have seen a few that are not so honest and try to do the taxation, however screw it up. There are three questions I suggest you ask your tax preparer to see if they know about FOREX trading: 1. can you explain the difference between 1256 contracts, and 988 contracts, and the difference in how they are taxed. 2. please explain mark to market to me, and would you generally recommend a FOREX trader to make the election. 3. Explain Traders Status to me, how do I claim it and do you recommend it?

If they can answer those three questions you have someone that knows enough to hire to do your taxes. JC
Jim, thanks for this reply. I just want to concur with what you have said. I have recently "divorced" my accountant of six years because he had no clue how to handle my new LLC trading business. Thank goodness I was fortunate enough to find another legally licensed CPA who is.......get this......a full time trader!!!
Quoting Trader Tax
1. can you explain the difference between 1256 contracts, and 988 contracts, and the difference in how they are taxed. 2. please explain mark to market to me, and would you generally recommend a FOREX trader to make the election. 3. Explain Traders Status to me, how do I claim it and do you recommend it?
jim, this is some great advice, thank you. how much $ per hour do you think is reasonable for someone who knows trader tax very well?
Relax and be happy.
If you are paying for someone to do your taxes, I think anyone worth their salt will charge somewhere in excess of $125 per hour, but someone worth their salt will take 1/2 as long to get things done, and also you have less worry about IRS audit. for consulting, the going rate is somewhere around $200.
Quoting Trader Tax
One of the most off asked questions. No organization that I am aware of, but what I am aware of is that because it is not economically feasable for most accounts to take the time to learn the nuances of trading taxation, they do not do so. Most if you ask them will be honest and tell you they do not know, however we have seen a few that are not so honest and try to do the taxation, however screw it up. There are three questions I suggest you ask your tax preparer to see if they know about FOREX trading: 1. can you explain the difference between 1256 contracts, and 988 contracts, and the difference in how they are taxed. 2. please explain mark to market to me, and would you generally recommend a FOREX trader to make the election. 3. Explain Traders Status to me, how do I claim it and do you recommend it?

If they can answer those three questions you have someone that knows enough to hire to do your taxes. JC
Thank you for educating us in what questions to ask a potential candidate. Unfortunately, asking questions that one does not know the answers to is not very productive, because how can you tell whether the answers are correct?

Could you please give us the correct answers to those questions, partly for use in screening potential accountants and partly because I think that we all would benefit from having the information ourselves.
i already have an LLC (its a small sales and distribution company) do i need a new LLC just for trading? can I keep the one and be covered? what do you suggest? is there more tax breaks for more LLC's? let me know thanks
4XPIPDADDY
Quoting Trader Tax
If you are paying for someone to do your taxes, I think anyone worth their salt will charge somewhere in excess of $125 per hour, but someone worth their salt will take 1/2 as long to get things done, and also you have less worry about IRS audit. for consulting, the going rate is somewhere around $200.
ok that makes me feel better my accountant is slightly higher than the "going rate" but within reason.

your response brings up another quesiton i have. is it true that the more reputable your accountant, the less likely you are to get audited?
Relax and be happy.
Thanks, I am off to ask somw questions... Scott



Quoting Trader Tax
One of the most off asked questions. No organization that I am aware of, but what I am aware of is that because it is not economically feasable for most accounts to take the time to learn the nuances of trading taxation, they do not do so. Most if you ask them will be honest and tell you they do not know, however we have seen a few that are not so honest and try to do the taxation, however screw it up. There are three questions I suggest you ask your tax preparer to see if they know about FOREX trading: 1. can you explain the difference between 1256 contracts, and 988 contracts, and the difference in how they are taxed. 2. please explain mark to market to me, and would you generally recommend a FOREX trader to make the election. 3. Explain Traders Status to me, how do I claim it and do you recommend it?

If they can answer those three questions you have someone that knows enough to hire to do your taxes. JC
I not believe that the IRS selects audit victims because of who does their taxes. That said no one but the IRS knows how they select who is to be audited.
Moonchild, What you are asking for is far too complicated to type in a chat room. I am just finishing a new CD on the taxation of FOREX traders. I will offer to you and anyone else that reads this post and responds by next Monday October 23, to send a copy of the beta of this CD, but only if you will write a review, (good or bad) that we can use on our web site. If you would like to receive a free copy of this, write to me at [email protected]. I must have your snail mail address to send it to you. The cd will be ready at the end of this month.

The CD will give you all of the answers that you are asking about. JC
4Xpipdaddy, your question has two answers. Isn't that just like an accountant to talk out of both sides of his mouth? anyway, to take advantages of the expense portion of trading you could certainly use your existing LLC, however from the asset protection portion, I would not dream of it. One of the main reasons we use entities as business properties is the asset protection they offer. Further, the law of insolation and isolation indicates that we should insure that all of our major assets should be separated from each other in case someone files a frivioulous law suit against us. Hope this helps
Quoting moonchild
Thank you for educating us in what questions to ask a potential candidate. Unfortunately, asking questions that one does not know the answers to is not very productive, because how can you tell whether the answers are correct?

Could you please give us the correct answers to those questions, partly for use in screening potential accountants and partly because I think that we all would benefit from having the information ourselves.
I mentioned earlier to you that I was at the end of producing a new CD that will have all of the information you would ever want to know (and then probably more) about Forex trading taxes. I am looking for a few people to listen and look at it and give me feed back positive, or negative, that can be used on our web page when we add it to our products. If you would like to review it send me an email [email protected] and mention you would like to review it. you will have to send your snail mail address since we want it to come to you as our customers will purchase it. Let me know if you want to be a reviewer for this new product.
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