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FF Trader Tax Thread

  • #61
  • Feb 5, 2007 10:21am Feb 5, 2007 10:21am
Quoting Forexflyer
Hello Jim,
Recently I have been approached by a swiss based broker trying to get me to open an account with them. The big sales pitch is that because they are swiss based and there is no capital gains tax in their country that even as an American citizen I would not have to pay taxes on my transactions. My first response to the salesperson was that they are wrong I would still be required to report my profits but they insisted that is not the case. They even push this on their website. So my question is simply are they lying or are they correct about the declaration of profits? Thanks
Good day, and good question: Overseas transactions are always a little muddy, however he is right and wrong. Probably, (and the operative word is maybe) if you open an account with him and trade there, and do not bring the $$ back into the US you could get by with paying no taxes, you would have to disclose the account on your IRS tax return. The minute you bring it back into the US you will owe taxes on it. Depending upon what state your butt hits the seat to trade from, and how aggressive they are (Think California and Florida) they may press the issue. My recommendation, go ahead and tade with him/her if you would like, bring your profit back into the US and pay your taxes. Remember you have a great boost because of the 60/40 split. Traders Accounting 02/05/07 JC
  • #62
  • Feb 5, 2007 10:26am Feb 5, 2007 10:26am
Quoting ycomp
yes this is one of the reasons there are (were?) so many millionaires in HK. Compounding works wonders in the absence of taxes. Or I guess they have some taxes, but they are low.
A lot of "stuff" about trading offshore, and taxes. Hope whoever is answering the questions knows what he/she is talking about. Someone states that they hate giving 50% of their gains away in taxes while trading FOREX. This would be hard to do even if you made a lot of money, since FOREX if handled right is traded as 1256 contracts, which are taxed at 60% long term capital gain (Max of 15% in fed tax) and 40% at short term capital gain which is taxed at your tax rate (max of 35% fed tax) If you are trading as a business you get to deduct all of your expenses prior to figuring your net income which you will be taxed on. So, quit worrying about offshore accounts, keep you eye on the trading ball, and set up a Tax Efficient way to trade in the US. Traders Accounting 02/05/07 Jim
  • #63
  • Feb 5, 2007 10:32am Feb 5, 2007 10:32am
Quoting Snuffleupagus
I am curious if anyone here has used the services of Traders Accounting.

I have received the feedback from the free questionnaire and did the follow-up phone call. A price was given for the corporation setup, etc. I did find it odd that when I asked if there was any documentation they could send me regarding this I was told no. I am new to this so maybe this is normal.

Would like to get opinions from those that have used their services. PM's are welcome if you don't want to post here.

Snuffleupagus, I hope you get some feedback, however as President of Traders Accounting, I am wondering what you mean by documentation? Help me out, because nothing we do is secret or in the gray area of the IRS code, everything we recommend is strictly what many others before you have done to create Tax Efficient trading plans. Let me know. Traders Accounting 02/05/07 Jim Crimmins
  • #64
  • Feb 5, 2007 2:31pm Feb 5, 2007 2:31pm
Quoting Trader Tax
Snuffleupagus, I hope you get some feedback, however as President of Traders Accounting, I am wondering what you mean by documentation? Help me out, because nothing we do is secret or in the gray area of the IRS code, everything we recommend is strictly what many others before you have done to create Tax Efficient trading plans. Let me know. Traders Accounting 02/05/07 Jim Crimmins
Trader Tax & WHTenn, sorry if the type of documentation I was asking for wasn’t obvious in my post. I figured it would be known based on the context of what I wrote. I asked about documentation regarding the service/package being offered to me. For example, the price and the details regarding the package. Of course for me the more that is in writing the better. Personally I prefer things to be in writing when I do business. The person on the phone was a fast talker and many things were not in writing in the results of the free tax action plan. Plus I didn't see any documentation of this type on the website. This seemed strange to me.
  • #65
  • Feb 5, 2007 2:35pm Feb 5, 2007 2:35pm
Quoting WHTenn
Hi Snufflepagus

What documentation did you request from them? You did not state above. Ask Traders Accounting if they would consider submitting your taxes as I.R.S. Status 1256. If they say no... do not use them. I have recently been told that they are interpreting the tax code differently from Green Tax Service which does allow traders to use the Status 1256. This is a difference of 12% in taxes in your favor.

Save money and set up your own corporation...and consider the L.L.C. which is only taxed once rather than being taxed twice like the S and C Corp setups. Then change your brokerage trading status to Corporation instead of single trader.

Good Luck!
WHTenn, I don’t believe there was discussion of “1256” status. As I mentioned in the post I just submitted, the person on the phone was a fast talker, so there is the possibility it was missed. Mark to market was mentioned in the tax action plan I received. I don't know if that is related. I am still learning this stuff.

When you say “Green Tax Service”, I assume you are referring to Green Company. I have heard good things about them, but don't know anyone that has actually used them. The impression I get is they are more geared towards educating and are there to consult if there are questions. I should probably give the site a more in-depth reading.
  • #66
  • Feb 5, 2007 2:40pm Feb 5, 2007 2:40pm
Quoting bookfixer
I don't know Traders Accounting, but I question the advisability of a Corporation for a trader. Although everyone's situation is different, generally a trader should be using an L.L.C. rather than a corp. An L.L.C. is pretty easy to setup, usually only a couple hundred dollars, and the tax savings even for a small trader will very quickly return that.

Jim
WHTenn & bookfixer, thank you for the advice about not using a C corp and setting up my own LLC to save money . The quote from Traders Accounting seemed expensive to me for the LLC package. However, I say this not knowing the average rates in this market. They recommended an LLC and C Corp since I am single which is almost double the price of the LLC package. If it is just a LLC then it must be a partnership LLC or they won't do it. I then asked if the partner has to be 50%. I was told it could be as little as 1%. The partner only needs to submit form K-1 and Traders Accounting will walk us through that.

Thanks again, I will be sure to put your posts in my notes.
  • #67
  • Feb 5, 2007 2:43pm Feb 5, 2007 2:43pm
If someone [not me] blows away their forex account [living in the USA], and are not a corporation, is it just a matter of filing Form 1040 line 21 with the loss? Are any other forms required?
  • #68
  • Feb 5, 2007 4:39pm Feb 5, 2007 4:39pm
Quoting confused
I read through this thread a few other tax threads, and stilll have a question. Hopefully someone can answer this question.

I recieved a 1099-B from my broker that showed my profit in block 8 and 11, and from reading I would like to elect out of the 988, and use the 1256. I will use the form 6781, but do I need to attach a list of every trade I made? Any help would be greatly appreciated.
No you do not need to list every trade, just the total profit/loss for the year. For acquisition and sale dates simply enter "various", the 6781 takes care of the allocation of ST vs LT automatically.
  • #69
  • Feb 5, 2007 5:12pm Feb 5, 2007 5:12pm
Quoting Snuffleupagus
WHTenn, I don’t believe there was discussion of “1256” status. As I mentioned in the post I just submitted, the person on the phone was a fast talker, so there is the possibility it was missed. Mark to market was mentioned in the tax action plan I received. I don't know if that is related. I am still learning this stuff.

When you say “Green Tax Service”, I assume you are referring to Green Company. I have heard good things about them, but don't know anyone that has actually used them. The impression I get is they are more geared towards educating and are there to consult if there are questions. I should probably give the site a more in-depth reading.

On 1/25/2007 Justin LeBlang of the EFG Group posted a single thread on here relating forex taxes and in it...it stipluated the following:

Forex traders receive a significant tax advantage over securities traders under Section 1256: reporting capital gains on IRS Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles) allows you to split your capital gains on Schedule D, with 60% taxed at the lower long-term capital gains rate (currently 15%) and 40% at the ordinary or short-term capital gains rate of up to 35%. That combined rate of 23% amounts to a 12% advantage over the ordinary (or short-term) rate.
If you trade exclusively in forex futures, it's smooth sailing come tax time; your trades fall under Section 1256 and automatically receive the 60/40 split.
But things get a little more complicated tax-wise if you dabble in cash forex, which is subject to Section 988 (Treatment of Certain Foreign Currency Transactions).

I sent Justin a PM stating that the paragraph was vague and it sounded as if spot forex can only file under Section 988 which is a totally incorrect statement. Justin replied back that he got this information from the Traders Accounting web site and had a meeting between EFX Group and Traders Accounting the next day. He said that he would clairify this information.

The following day, Justin PM me back and stated .... "I spoke with Traders Accounting today. They ran the posting past their tax director and compliance and it came back to be factually correct. They said if one is confused by the wording this does not imply it to be wrong".

I contacted Green Traders that read your statment and they agreed with me that your statement makes on believe that spot forex traders are only subjected to filing Section 988 which they state that is totally incorrect. This allows me to believe by the wording that Traders Accounting favors a spot forex trader to file Section 988.

If Traders Accounting does allow spot forex traders to file Section 1256, then you need to word the above paragraph differently instead of making it sound as if they can only file as Section 988.

Justin has sense deleted the thread due to the discrepency.

I look forward to your response.
  • #70
  • Feb 5, 2007 5:20pm Feb 5, 2007 5:20pm
Quoting Snuffleupagus
WHTenn & bookfixer, thank you for the advice about not using a C corp and setting up my own LLC to save money . The quote from Traders Accounting seemed expensive to me for the LLC package. However, I say this not knowing the average rates in this market. They recommended an LLC and C Corp since I am single which is almost double the price of the LLC package. If it is just a LLC then it must be a partnership LLC or they won't do it. I then asked if the partner has to be 50%. I was told it could be as little as 1%. The partner only needs to submit form K-1 and Traders Accounting will walk us through that.

Thanks again, I will be sure to put your posts in my notes.
Hey there... have your Spouse or a relative be the partner. Go to this site and check it out.... http://www.llcweb.com/what.htm
  • #71
  • Feb 5, 2007 6:01pm Feb 5, 2007 6:01pm
Thanks for those 2 posts. It looks like Green Company really knows taxes for traders.

Quoting WHTenn
Hey there... have your Spouse or a relative be the partner. Go to this site and check it out.... http://www.llcweb.com/what.htm
I was thinking this after I was told a 1% partner is good enough. I need to investigate from other sources what this entails, so I can tell this person what they are getting into and if there is any risk.
  • #72
  • Feb 5, 2007 6:08pm Feb 5, 2007 6:08pm
Hi,

I have some questions and this seems to be the place to ask for now?

I have had a small home based business dealing with communications (Long distance phone company) that has made no profit in some 3 years. I use what deductions I can for tax savings and will show no profit again this year. (2006)
I also started trading forex in 06 I guess as a individual, first year is all a loss but I am starting to trade better this yeas so far. Further more I have invested (small amount) in some currency that I believe will revalue at a much higher rate. (long story)

What would you recommend I do in this senerio LLC wise?

any advice will be helpfull even if it is to prepare for my 07 taxs.

Thanks
kevin
  • #73
  • Feb 6, 2007 9:43pm Feb 6, 2007 9:43pm
I've tried HR Block and a few others online and I can't any of them to allow the negative value in line 21 of the 1040 (other income).

Any other way I can report it? Other investments?

I have around a $1200 loss.
  • #74
  • Feb 7, 2007 7:25am Feb 7, 2007 7:25am
Quoting fldash
I've tried HR Block and a few others online and I can't any of them to allow the negative value in line 21 of the 1040 (other income).

Any other way I can report it? Other investments?

I have around a $1200 loss.

The problem might be that there is an "Other Income" worksheet for line 21, so you may not be permitted to enter it directly on line 21. You may need to enter the information on that worksheet where it will then carry forward to line 21.
  • #75
  • Feb 7, 2007 7:36am Feb 7, 2007 7:36am
I thought that myself but I've been unable to find any worksheet in their programs to do that. I've tried HRBlock.com and two others... Looks like I may need to do it manually and not efile unless someone has a site that they know of online that allows negative income on line 21.
  • #76
  • Feb 7, 2007 8:00am Feb 7, 2007 8:00am
Quoting fldash
I thought that myself but I've been unable to find any worksheet in their programs to do that. I've tried HRBlock.com and two others... Looks like I may need to do it manually and not efile unless someone has a site that they know of online that allows negative income on line 21.

I use TaxAct (preparer's version) and had no trouble entering a loss in the other income worksheet. It carried forward to line 21 correctly. Did you use the interview feature and answer yes to other income? That might help.
  • #77
  • Feb 7, 2007 8:08am Feb 7, 2007 8:08am
I had three questions. When entering the loss on line 21 what description do you use? What documentation must you include with your return? Can you still e-file?
  • #78
  • Feb 7, 2007 8:09am Feb 7, 2007 8:09am
Yes, I used the interview process and I said yes to Other Income. However still no luck on entering a negative value in the field when I go thru and type in each Extra Income item.

I'll look into TaxAct. I really like HR Block because they give me PDF versions on my returns after I'm done.
  • #79
  • Feb 7, 2007 8:43am Feb 7, 2007 8:43am
TaxAct online will let you enter negative income for the Other Income section. I'm going to use them. Thanks a ton, only $15.00 too which is less than HRBlock. Now, what do I put for the description? Right now I have it as:

GAIN CAPITAL SPOT FOREX -xxx.xx
OANDA.COM SPOT FOREX -xxx.xx

I think I should become a better trader so those values are positive.
  • #80
  • Feb 7, 2007 9:27am Feb 7, 2007 9:27am
Quoting Snuffleupagus
Trader Tax & WHTenn, sorry if the type of documentation I was asking for wasn’t obvious in my post. I figured it would be known based on the context of what I wrote. I asked about documentation regarding the service/package being offered to me. For example, the price and the details regarding the package. Of course for me the more that is in writing the better. Personally I prefer things to be in writing when I do business. The person on the phone was a fast talker and many things were not in writing in the results of the free tax action plan. Plus I didn't see any documentation of this type on the website. This seemed strange to me.
We certainly have that, do not know why it was not sent to you, but if you will email me your email address, I will send it to you at once. [email protected]
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