tax efficient trading plan

8/3/2019 Tax Efficient Trading Plan

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Creating Your Own Tax EfficientCreating Your Own Tax EfficientTrading PlanTrading Plan

President,

Traders Accounting

DisclaimerDisclaimer

To our knowledge, the information given in this webinaris accurate as of the date of this webinar. Tax changeshappen daily, so prior to your using this information tomake a decision about your taxes it is recommendedthat you consult with your tax accountant or tax attorney.

Traders Accounting is not a law firm so no advice givenhere should be construed as legal advise.

ContactContact

www.tradersaccounting.com800-938-9513

[email protected]

http://tradersaccounting.blogspot.com/


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Why Tax Efficiency?Why Tax Efficiency?

Increased Cash Flow How can you maximize your cash flow?

s program w g ve you e roa map: earnto create more money to trade with.

Two RiversTwo Rivers

Facts You Should KnowFacts You Should Know

For every dollar you can write off you will savesome percentage as cash flow

ere are many expenses t at uness youtrade as a business that you cannot deduct

A traders largest expense is taxes, whetheryou make or lose money trading


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There are two tax codes in this country Individual or business

What does the IRS consider a business to be?

Facts You Should KnowFacts You Should Know

Economic performance has been met

9 other factors

It is up to you which one you want to use, asboth are legal and available

Expenses:

Organizational Expenses *

Equipment Purchased from Shareholder

One time write off of start up costs

Amortization of start up costs over the limit

Automobile expense mileage @ 51 cents per mile

Expenses an Active Trader in BusinessMight Take

Payroll to Employees:

Payroll Taxes Federal

Payroll Taxes State

Medical Insurance

Contribution to Qualified Pension Plan

Contribution to non-qualified Plan

Life Insurance

Medical Reimbursement Plan

Dues & Subscriptions: Cable

Dues & Subscriptions: Magazine

Dues & Subscriptions: News Services

Dues & Subscriptions: Newsletters

Dues & Subscriptions: Newspaper

Dues & Subscriptions: Trading Organizations

Dues & Subscriptions: Satellite Radio


Educational Expenses: Home Study

Educational Expenses: Seminars

Educational Expenses: Trade Shows

Equipment Repairs

License and Permits Local

License and Permits State


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Office Equipment Purchase (sec 179)

Home Office Deduction

Bank Service Charge

Office Supplies


Software Purchases

Telephone and Fax Charges

Internet Connection

Professional Fees: Accounting

Travel & Entertainment: Hotels (Learn to properly document)

Travel & Entertainment: Meals (Learn to properly document)

Travel & Entertainment: Travel (Learn to properly document)

Deductions are a matter of legislative grace,and the

taxpayer must maintain adequate records tosubstantiate the

III. Expense Deductions

A. General Rules

Deductions are a matter of legislative grace, and the

amounts of any deductions or creditsclaimed. Sec. 6001 (the

taxpayer shall keep such records);INDOPCO, Inc. v.

ommissio3 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income

amounts of any deductions or credits claimed. Sec. 6001 (thetaxpayer shall keep such records); INDOPCO, Inc. v.Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), IncomeTax Regs. Taxpayers must maintain records relating to theirincome and expenses and must prove their entitlement to allclaimed deductions, credits, and expenses in controversy. Seesec. 6001.

Learn What To DeductLearn How to Document

Save $50Save $50 Take the fearTake the fearout of taxout of tax

E-Mail Raven! [email protected]

IRS AuditsIRS Audits


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Classification of TradersClassification of Traders

Investors

Business as trader Sole Proprietor (Trader in Securities) Formal Business Entity

C Corporation Flow Through Entity

LLC LP

How Do I Decide Which is Best for me?How Do I Decide Which is Best for me?

Booklet that explains the different types of businessyou might use for your trading business.Booklet that explains the different types of businessyou might use for your trading business.

Free 30 minute consultation with one of our advisorsto ascertain which business would be the most taxefficient for you to trade in!

EXTRA BONUS: SHORT DVD ON HOME OFFICEDEDUCTIONS


EXTRA BONUS: SHORT DVD ON HOME OFFICEDEDUCTIONS


Generally thought of as people who look for

lon term appreciation and dividendsHowever

Any trader who does nothing to improve histax status will be regarded as an investor


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Low on the food chain Subject to $3,000 loss rule


Expenses that are deductible are subject to

the 2% threshold Most expenses not deductible because they

are considered hobby expenses Margin expense only deductible to the extent

that you make money trading

Wash SalesWash Sales

Definition

Example

wn .

Sell 12/01/10 @ $23 Loss $2.

Buy 12/28/10 @ $23 Loss $0.

Wash SalesWash Sales

Definition

Example

.

Sell 12/01/08 @ $23 Loss $2.

Buy 12/28/08 @ $23 Loss $0.

$25.


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Types of Business to Trade inTypes of Business to Trade in

Trader in securitiesFlow through entities

Limited partnership

C-Corporation

Trader in SecuritiesTrader in Securities

No election necessary

If you qualify you file a schedule C withour 1040 tax return and deduct all of

your trading business expenses

Basically the same as trading as a soleproprietor

Trader in Securities ConcernsTrader in Securities Concerns

Nothing in the tax code about this status

Everything we know is from a tax courtcase

One years court opinion may not be true thenext year - Chen v. Commissioner 2004

Sole Proprietors are audited much more oftenthan individuals or formal entities.


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IRS Publication 550

Special Rules for Traders in Securities

You must seek to profit from daily marketmovements in the price of securities and notfrom dividends, interest or capital appreciation.

Your activity must be substantial.

You must carry on the activity with continuity andregularity.

IRS Publication 550

Facts & circumstances to be considered


yp ca o ng per o s or secur es oug an so

Thefrequency and dollar amountof your trades duringthe year

Theamount of timeyou devote to the activity

How can you decide?

Weigh benefits (deduction of trading


expenses) against cons (uncertainty ofthe law and frequent IRS audits)


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Trade in a Flow Through EntityTrade in a Flow Through Entity

Limited partnerships (antiquated but OK) Sub S-Corporation -never trade in a sub s

- e ow roug en y o c o ce

LLCLLC

Owners called members

Can be managed by one person or all members

IRS considers 1-person owned LLCs as a disregardeden y so you ave e same pro em as a soeproprietor

LLC pays no tax to IRS

Profits from trading flow through to the members, withno payroll tax owed and with the same characterizationof income. i.e. capital gains

Learn to Trade in a CLearn to Trade in a C--CorporationCorporation

Complete stand alone entity

Pays its own taxes (albeit at a much smaller

Has special tax rules

Considered to be a business when setup, no concern for 300 trades


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CC--CorporationCorporation

Special Tax Rules

1. Medical Reimbursement Plan

2. 70% dividend exclusion Law

Combo EntitiesCombo Entities

Management Corporation Ownedby you and your family

LLC- Your Brokerage Account GoesHerePartnership LLC with the ownersbeing the corporation and the individualtrader.

.

Why Use Entities?Why Use Entities?

Deduct trading expenses without worrying about specialrules for traders

Go back for at least 12 months and recapture yourbusiness expenses

Increase your cash flow

Perks

Wealth protection - learn the law of insulation andisolation (what will you do when your personal assets,including your trading account are seized to satisfy ajudgment against you?)


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How Do I Decide Which is Best for me?How Do I Decide Which is Best for me?

Booklet that explains the different types of businessyou might use for your trading business.


SPECIAL BONUS: FREE SHORT DVD ON HOMEOFFICE DEDUCTIONS!

How do I Get GoingHow do I Get Going

It will make a difference on who you have set up yourentities!

An one can start to set their own u but ,

Make sure your incorporator understands trading

Traders Accounting would very much like to helpyou, we have a plan that insures your success

Mark to MarketMark to Market

Panacea or problem for most traders?

Only available to a trading business

anges cap a ga n oss o or naryincome/loss

Does away with wash sales

Stringent rules on when and how to elect


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Stringent rules on when and how to elect for individuals using

traders status and existing entitiesMust be elected NLT April 15th of the first year you wish touse it. No exceptions

You send a letter to the IRS by 4/15 indicating you wishto make the election (extensions for your tax return donot give you the right to send your letter in later than4/15.)

When doing your tax return for the first year afterelecting you must include an IRS form 3115


Newly formed entities

Election must be made within 75 days of the date you receive.

What State Should I Set My Trading BusinessWhat State Should I Set My Trading BusinessUp in?Up in?

Generally best to set it up in the state you live in

There are a few exceptions, but not many


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Taxation of TradersTaxation of Traders

Generally Capital Gain Long Term (Maximum 15% Fed Tax)

ShortTerm Taxed at our tax rate

Hybrid (1256 Contracts) (60%-40% split)

Taxation of Futures & Broad Based IndexesTaxation of Futures & Broad Based Indexes

Considered to be 1256 contracts

Taxed 60% long term and 40% short term no matter howlong you hold them

Taxes filed on IRS for 6781-onl identif our broker noteach trade

Open positions on 12/31 considered closed for taxpurposes

Go back three years and forward for five for losses(corporation)

Mark to Market generally not elected by these traders

Taxation of ForexTaxation of Forex

Spot or Cash Forex are 988 trades

988 trades are not considered capital gain, but ordinaryincome

ou can conver ra es o ra es, u no auniversal election


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Taxation of ETFsTaxation of ETFs

Other items that you could conceive.

How Do I Select a Tax PreparerHow Do I Select a Tax Preparer

Not a lot of preparers understand the ins and outs oftrading

Ask your preparer, do you understand traders taxation?

op e ree ques ons

What is mark to market? -- How do I elect it?

What are wash sales?

How are 1256 contracts taxed?

Remember you can always use Traders Accounting

Family Living TrustFamily Living TrustAn orderly distribution of your assetsAn orderly distribution of your assets

Avoid Probate

Protect privacy

Probate is t ime consumin and ex ensive Makes your decisions early

Optimum transfer taxation

Special needs children/grandchildren


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Family Living TrustFamily Living TrustThe Top Five Reasons You need a Living TrustThe Top Five Reasons You need a Living Trust

1. Do you have a distribution plan for your family estate?2. Do you want to plan for your own possible disability or

incapacity?

3. Do you want to keep your estate information private?

4. Do you want to reduce or eliminate your estatesettlement costs?

5. Do you want to leave a positive legacy for your family?

Traders SelfTraders Self--directed 401Kdirected 401K

Stimulate your Retirement Account

Not your Fathers Fidelity or other broker

401K Plan

Traders SelfTraders Self--directed 401Kdirected 401K

The Top 6 Reasons You Need a 401K

1. Increase the amount you have to trade with byborrowing up to $50K!

. e up a o or egu ar

3. Avoid FICA tax on contributions

4. Shelter over $40K in a regular 401k.

1. Contribute $16,500 to a ROTH 401K

5. Outstanding Asset Protection

6. Take personal charge of your retirement future.


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Two RiversTwo Rivers

Want some handouts?Want some handouts?

Email: [email protected]

And put the following items in the subject window signifyingwhich handout ou wish to receive

Presentation Slides

Expense sheets

Questionnaire

IRA DOL letter

Business or Hobby? IRS definition letter

Learn What To DeductLearn How to Document

Save $50Save $50 Take the fearTake the fearout of taxout of tax

E-Mail Raven! [email protected]

IRS AuditsIRS Audits


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Thank You For AttendingThank You For Attending

Jim Crimmins

[email protected]

800-938-9513

tax efficient trading plan

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