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FF Trader Tax Thread

  • #121
  • May 11, 2007 9:35am May 11, 2007 9:35am
Great question, and of course you get the accountants offer, maybe. I think that you should put the account in the name of the LLC for asset protection, however you would want to keep the gain/loss on a seperate line on your profit and loss statement, so it did not get mixed in with your other trading accounts. Traders Accounting May 11, 2007 Jim Crimmins
  • #122
  • May 11, 2007 1:25pm May 11, 2007 1:25pm
Thanks Jim, i'll begin the process of filling out the appropriate paper work that would tag the accounts as belonging to the LLC.

Cheers,
Thom
  • #123
  • Jul 19, 2007 5:19pm Jul 19, 2007 5:19pm
Hi, Jim,

Just found this great thread. Learned a lot from reading the posts.

I have a few questions:

(1) Even if I am an "investor", I still have the choice of electing opt-out-of-988 or not-opt-out. Correct? In other words, 1256 vs 988 is a choice regardless of whether I declare myself as a trader or as an investor.

(2) If I am an investor, how do I report rollover interest charges (in which tax form)?

(3) If, on the other hand, I declare the trader status, then how do I report rollver interest charges?

Thanks!
Charles
  • #124
  • Jul 21, 2007 11:38am Jul 21, 2007 11:38am
1) Even if I am an "investor", I still have the choice of electing opt-out-of-988 or not-opt-out. Correct? CRIMMINS: YES THIS IS AN ELECTION YOU ARE REQURED TO MAKE AT THE TIME YOU MAKE EACH TRADE, AND SHOULD KEEP A LOG TO SHOW EACH TRADE WITH THE YES OR NO IN A COLUMN, WE HAVE A FREE SPREADSHEET ON OUR WEBSITE (www.tradersaccounting.com) CALLED TRADE TRACKER, YOU WILL NEED TO ADD THE COLUMN FOR THE YES OR NO. In other words, 1256 vs 988 is a choice regardless of whether I declare myself as a trader or as an investor. CRIMMINS: YES

(2) If I am an investor, how do I report rollover interest charges (in which tax form)? CRIMMINS: THE CODE PERMITS A DEDUCTION FOR INTEREST PAID IN THE YEAR ON INDEBTEDNESS, PROPERLY ALLOCABLE TO PROPERTY HELD FOR INVESTMENT. HOWEVER, THERE IS A LIMIT ON OTHERWISE ALLOWABLE DEDUCTIONS THAT MAY BE TAKEN BY AN INDIVIDUAL INVESTOR FOR INVESTMENT INTEREST. THIS DOES INCLUDE SHORT SALE INTEREST EXPENSES. GENERALLY THE INVESTMENT INTEREST IS LIMITED TO THE AMOUNT OF "NET INVESTMENT INCOME". ANY OTHER INVESTMENT INTEREST EXPENSE IS CONSIDERED EXCESS INVESTMENT INTEREST AND IS DISALLOWED.

If, on the other hand, I declare the trader status, then how do I report rollver interest charges? CRIMMINS: GENERALLY, IF YOU QUALIFY FOR TRADERS STATUS, (AND THE RULES DO NOT CHANGE AGAIN) YOUR INTEREST SHOULD BE A BUSINESS EXPENSE AND ABLE TO BE WRITTEN OFF.

July 21, 2008 Traders Accounting, Jim Crimmins
  • #125
  • Jul 22, 2007 11:33am Jul 22, 2007 11:33am
Quoting Trader Tax
if you are trading 988 trades and opting out,yes you do have to turn in a log showing that you did opt out of each trade converting them to 1256 contracts.
Trader Tax, do you mean "turn in a log" only if you're audited? Or with every annual tax filing? I thought an FX trader simply needs to keep a personal log (showing 988 opt out), and files the net P/L on 6781. IRS law states the log must be filed?
  • #126
  • Jul 23, 2007 9:33am Jul 23, 2007 9:33am
yes, you are correct, the log has to be in your possetion, and in case of any type of audit may need to be presented to the IRS. Traders Accounting July 23, 2007, Jim Crimmins
  • #127
  • Jul 23, 2007 12:18pm Jul 23, 2007 12:18pm
I have a question regarding the use of line 21 on form 1040. Do I calculate in the rollover interest gains from my carrytrade positions in this figure?

What if the broker sends me a 1099-INT for the interest? Normally, this is reported as interest, but I read that this should be calculated against the overall net performance of cash forex trading if using line 21.

Can you please confirm?


Thanks,

Frank
  • #128
  • Jul 25, 2007 10:11am Jul 25, 2007 10:11am
All trading interest whether you receive it or pay it is considered to be Investment Interest, is accounted for on Form 4952, and in the case of interest expense is subject to the limitation on deduction of Investment Interest as outlined in Code Sec. 163(d) July 25, 2007, Traders Accounting, Jim Crimmins
  • #129
  • Jul 25, 2007 1:46pm Jul 25, 2007 1:46pm
Thank you so much for your answers. I hope you don't mind if I ask a few more questions:

(1) Are forex trades not subject to "wash sales"? In terms of "wash sales", does it make a difference if I elect 1256 or 988?

(2) If I form a single-member LLC, and it is disregarded as a separated entity, do I still have to pay myself a "salary" or "fee", and keep a separate accouting book like a C-corporation? I thought if I report the LLC's incomes/expenses as part of my personal tax returns, the money is mine and there is no need to pay myself a salary/fee or keep a separate book?

On this subject, do you really think a 2-member LLC is better than single-member LLC in terms of claiming trader status? Won't IRS apply the same rules regardless of how many members there are in the LLC?

(3) I visited your web site, and am very interested in your products/services. I noticed that you have a product on your web site, a CD for forex traders. Is this CD an audio CD or a CDROM (ie, with texts for me to read)?

I also notice that you are in Arizona. But I am located in New Jersey. Can you still help me, eg. in NJ State taxes?

Thank you again very much.

Charles
  • #130
  • Jul 25, 2007 2:56pm Jul 25, 2007 2:56pm
Jim,

Thanks for the reply. I just looked at IRS Form 4952. It is titled "Investment Interest Expense Deduction". I read the instructions and it "sounds" like this form is if you paid more interest than you received.

Can you please clarify or let me know what I'm missing?

I have made more in interest than I have paid. But, I have losses due to trading.

Thanks,

Frank


Quoting Trader Tax
All trading interest whether you receive it or pay it is considered to be Investment Interest, is accounted for on Form 4952, and in the case of interest expense is subject to the limitation on deduction of Investment Interest as outlined in Code Sec. 163(d) July 25, 2007, Traders Accounting, Jim Crimmins
  • #131
  • Jul 26, 2007 1:53pm Jul 26, 2007 1:53pm
Sorry, did not check my post, your i expenses go on form 4952, and your income goes on Schedule B which is included in your annual 1040. July 26, Traders Accounting. Jim Crimmins
  • #132
  • Aug 7, 2007 5:46pm Aug 7, 2007 5:46pm
Hi, Jim,

You might have missed my questions posted earlier. I'd appreciate it if you can help me on these questions. Thank you very much.

Charles

Quoting c10000
Thank you so much for your answers. I hope you don't mind if I ask a few more questions:

(1) Are forex trades not subject to "wash sales"? In terms of "wash sales", does it make a difference if I elect 1256 or 988?

(2) If I form a single-member LLC, and it is disregarded as a separated entity, do I still have to pay myself a "salary" or "fee", and keep a separate accouting book like a C-corporation? I thought if I report the LLC's incomes/expenses as part of my personal tax returns, the money is mine and there is no need to pay myself a salary/fee or keep a separate book?

On this subject, do you really think a 2-member LLC is better than single-member LLC in terms of claiming trader status? Won't IRS apply the same rules regardless of how many members there are in the LLC?

(3) I visited your web site, and am very interested in your products/services. I noticed that you have a product on your web site, a CD for forex traders. Is this CD an audio CD or a CDROM (ie, with texts for me to read)?

I also notice that you are in Arizona. But I am located in New Jersey. Can you still help me, eg. in NJ State taxes?

Thank you again very much.

Charles
  • #133
  • Aug 8, 2007 10:52am Aug 8, 2007 10:52am
thanks for the email Charles:
1. It does not appear that either 988 trades or 1256 trades are subject to wash sales, they are however, subject to "Straddle" rules.

2. Your thoughts are correct with regard to a single member LLC and salary. A trader would almost never want to pay themselves a salary out of an LLC because of the 15.3% payroll tax they would have to pay. However, be aware that the SMLLC is disregarded, which means you fall back to the position of having to meet the requirements of a "Trader in Securities" and all of the constant rules changes that go with that. If you form an LLC as a partnership, we do not believe that you have these same requirements. As long as you are an active trader in a formal entity that is not disregarded, it is my belief that you are a business and can benefit from filing as a business.

3. It is a CD ROM powerpoint presentation with audio.

4. While many of my friends, at the start of another football season would say that no one in NJ can be helped, we do have great clients in almost every state, and many foreign countries. In this age of electronic mail (look at what we are doing here, if you went back in time just five years, no one would believe that this would be possible) it is very easy to work with clients no matter where they are in the world, and the client does not have the hassle of trying to find a parking spot when they bring their records in.
  • #134
  • Aug 9, 2007 10:36am Aug 9, 2007 10:36am
Thank you so much for such a detailed reply!
  • #135
  • Aug 18, 2007 12:11pm Aug 18, 2007 12:11pm
Hi Jim,

Are there any US tax advantages in spread betting compared to spot Forex?
  • #136
  • Aug 20, 2007 6:19pm Aug 20, 2007 6:19pm
Good question, I have no idea, no knowledge at all about betting. 08/20/07 Jim Crimmins, Traders Accounting
  • #137
  • Aug 20, 2007 6:42pm Aug 20, 2007 6:42pm
Quoting Trader Tax
Good question, I have no idea, no knowledge at all about betting. 08/20/07 Jim Crimmins, Traders Accounting
Just for clarification in case you thought I was talking about regular betting, I was referring to spread betting Forex. Etrade spread betting is one example of this. Just another way of trading.
  • #138
  • Aug 28, 2007 7:58am Aug 28, 2007 7:58am
Quoting Snuffleupagus
Just for clarification in case you thought I was talking about regular betting, I was referring to spread betting Forex. Etrade spread betting is one example of this. Just another way of trading.
I dont so. I was reading earlier about this, I am not actually sure spreadbetting is legal in america.
  • #139
  • Oct 1, 2007 3:05am Oct 1, 2007 3:05am
I just read an article about taxes for traders/investors that forming a General Partnership as husband & wife is more benefical than LLC with two members as husband & wife. I wonder if this is true for spot forex?
  • #140
  • Oct 1, 2007 11:41am Oct 1, 2007 11:41am
Sideburn, personally I trade in a limited partnership, but only because when I set it up LLC's were not that well known. While a partnership will work, I think it should be Limited, but I would also think that an LLC gives you more asset protection. Traders Accounting, October 1, 2007 Jim Crimmins
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