Taxes and Trading - tastytrade Talks Taxes For Traders

how's your back my friend we are and you know just a couple of quick updates before we get into the tax session the the senator was Carl Levin and if you have a chance to to YouTube that video it's hysterical the interview with the CEO of Goldman Sachs good stuff and also uh somebody else just emailed me great point take a look at Pandora for a second sure because we've had this butterfly in there we said just wait it out you don't take it off just wait it out it's stocks 861 right as a free chef on the dance floor right that's all it is we're on the dance floor all right Tony um and a bunch of stocks perking up on my little little home page here my Kitase how are you I'm good how are you guys hey thanks for come back on sorry about the mess up yesterday yes the hours got confused over there no worries man thank you so much for your time hey before we get into this Mike the the first question I I get the most often is on and I know that this one's something that you probably have that you've answered a thousand times but can you just talk about the option to elect trader status or not and why would somebody do it and why wouldn't they do it right so that's that is your item that's the number one question I get how do I qualify straighter what do I have to do and everyone thinks that you have to send some kind of form to the IRS then the heiress tells you great you're a trader now and you can do whatever you want and in actuality there's no form if you elect this the status it's actually the way you file your tax return whether you're declaring your traitor and securities or not and based on that they'll show where you're going to report your income and where you're going to put your expenses meaning to trade uh so there isn't any specific form that you send in say I want to be trader and the government will tell you okay you qualify what we do when we interview different you know clients or potential clients we go through a list of about six different tests and we see if they have what it takes to qualify straight and if they do we give them the recommendation of what what to do there's actually nothing definitive to said you're going to be a trader if you do a thousand trades or you'll be a trade if you can do this every day or there's nothing in the code because there's nothing written in the code Congress never written anything about trading securities all we know about trading security status comes from basically forced cases that's where we derive our guidelines and we tell people what it takes to qualify now there's huge benefits to qualify this rate as you all know your write up all your losses at the same year they occurred you can write off all your expenses as opposed to if you're an investor many of these expenses are not even deductible to begin with and those who are adjustable you've got itemized on your schedule a and they're subject to super strength or you're just a gross income and they're also subject to alternative minimum tax and it says you really don't get a lot of benefit when you're filing as an investor at least from a tax perspective okay so and what would be on a negative mic what why would somebody not opt for this because like you know I know I have this argument my account every year so so why would you not opt for it you know maybe for some people the negative would be that if you file as a trader you may be inclined to receive an examination of the IRS and that is not fun cuz you have to you know get all your receipts and get all your trades and show that you're a trader and show your Diaries and show your trade log and all that kind of stuff it may not be pleasant for some people but I think it's worth the risk I mean you know on on average HD people can save you know thousands of dollars to you know tens of thousands all depending on what the size of your trading account is so I think it's worth it okay so we have a bunch of questions for you I hope we've got them to you in advance so that you can see what we're gonna post on the board right now but I'm gonna start with them number one Linda can you fire it up on the board please okay so question number one Mike what is the Betty's came from our listeners we have great listeners they've sent in a million questions we picked about the top six so we'll go through these relatively quick but what is the biggest tax change what is the biggest change in tax laws that traders should be aware of well when we talk about tourism as our traders and investors but everyone should know that you know the new tax laws that we have right now are expiring at the end of this year so we have looked for weeks before the end of the year and that's where they're in expire and then we go back to the old tax rate it was back in 2003 where long-term capital gain goes from 15 to 20 so that's a change a lot of people should know if they're investing wrong so that's a 5% spring of example have a corn who had was sitting on Apple for about a million dollars a game and he asked me should I step on or not sell it and I get that question all the time and I told them listen you know you got $50,000 swings it's up to you whether you want to sell it now or wait to the end of the next year is the other thing the other thing about what will happen to your position in the next months or years so that's one big change on top of that because of the health care reform we're going to have a three point eight percent surcharge on again on capital position and those are for people who are making over $250,000 that's currently where the mark is asked they're still in discussions over that if it's 250 or more than 250 okay I'm sure that a lot of your listeners are there so that's a big thing for them to to know about okay what's the next one thank you what's the next one Linda what do I do with the trades I made before the LLC before the LLC can I claim trader status as an individual and recognize my losses which exceed $3,000 year-to-date okay so this listener is confusing two things you definitely can qualify the trader as an individual they got a look at what that person did and see if he has what it takes to qualify sure but the losses that he had if he is not elected mark-to-market which I'm assuming from this question he didn't he's still stuck with that $3,000 loss that all you know traders or investors have unless you make that mark - mark election so you can't back state this election he can fix this maybe to the future and decide when it makes sense in Lexmark the market for 2013 but for 2012 it's done right now that's the most confusing thing for most people is that you have to have that made that election in the prior year yeah they confuse it if they think if you qualify the trader automatically you get to write off your losses and it's not true okay because you had to made the election last April prior I hate bright by April correct right okay let's go to the next question should we treat all trades with the same tax basis or is it better to assign a specific tax basis with a specific trade or trading strategy okay this will divide into two if you're a trader your cost basis doesn't mean anything I mean if you elect mark the market doesn't mean anything if you're trading short-term and then all your positions are going to be liquidated by the end of the year so it doesn't really matter because you're never going to have inventory of that position if you're an investor in the holding position over a longer period of time for years then you got to think about what you want to do and there's different methods that there's life oh and there's FIFO and there's cost average and there is you know the tax efficient harvester method there's all sorts of method and it all depends with your goal is that what the IRAs usually likes to speak is be used to explain to them is a FIFO first in first out so they can correlate the stock you bought today the stock is going to sell a month from now so you know uh maybe change if you don't know other methods uh if you may pay less taxes today because you're going you're selling your highest stock highest prices now but you can pay more tax in the future so then you have to think what what you want I mean want to pay now you want to pay later third you are gonna pay it right you're gonna pay it yet but there's a question of paying it the question is when you're going to fit I personally think that if I can say it as further out as I can I will do that but rather pay now as little as possible cause we all know about the valuation of the dollar and I'm going to get into that discussion but we all know that that the value of dollars declining over time so I'd rather pay my hundred dollars not today in tax I'll pay it in you know maybe a year from now or two years from now it'd be better for me well it leads perfectly into the next question so let's fire this up what is the best way for a trait what is the best way a trader should set up their cost basis to minimize their tax liability so it's kind of just what you just went over but it's kind of like what we went over as a similar question so again it depends on the person individual stuff so for example let's say let's look at it right now the situation if somebody has they before I go there you you have to be consistent and with the method you can stay okay for this trade I'm using that method but that's made I'm using that method you may be able to do that if you have multiple accounts there's when you set up the account most brokers will ask you what methods you want and you can pick but you can't go over say so this trade is better for me to go lipo something to that and this rate is better to be both average cost based I'm going to bet because you're going to confuse yourself you can confuse the hours and hours doesn't want to gets going to see you penalize and know what is there your tax liability so I would say pick a method and stick with it I don't think there's a big difference unless you're investing longer term but if you're a short-term investor or a short-term trader like I said doesn't make any difference really if you like to March the market because you convert everything into into ordinary so that kind of is still a very good question number five what form do we use if we are trading spot for us also if we do not withdraw from an account do we still need to claim wins or losses okay so that was the second part actually if you have to claim if you don't withdraw it you absolutely have to report the trades or the games whether you take the money out or not okay a lot of people get confused with that when they talk about uh you know about trading if you actually realize that rate meaning you bought the sold or sold and bought and sold sold shortened Bob to cover you absolutely have to report that same thing with corporations and partnerships if you don't take money out you still have to report the money now we go back to the first part is where do you report this well that depends there are two big bolts for spot for extra section 9 88 which means its ordinary income a loss and that you normally would report that your front 1040 in line 21 other income there is no place to put us to put it other than there now if you elect to opt out of section 1988 and go inter section 456 you can qualify for it as futures think it's called section 12 56 d then you've reported uh you can report it on the section uh I'm sorry on the form 47 97 so it depends where you where you want to go with with with that now now what what you will need to consider is this if you're losing money before it could be ordinary income because you get to write up the whole thing and if you're making money you want to get 1256 because you get the 60/40 split so taxpayers always ask so what should I do can I go back and forth you can but it's not recommend you want to stick with a method if you had one you know you're out of the ordinary we lost you know hundred thousand dollars yeah you maybe probably will try to qualify for section 988 then the following years will go back last night hey hey Mike there's a question I get all the time before it gets last question here that where people email and they said you know what the way we approach trading which is a very tasty trade driven approach which is which is all a number of occurrences in order to be successful and to hit your target um it means people end up trading a lot more than they're used to in the past and the question I get all the time is now that I'm trading more my accountants are my accountant gets very nervous or scared or you know this isn't they're not used to kind of active trader type accounts does it really matter because because I don't think it matters but I want to hear this from you just really matter how much we trade with respect to chances of an audit or how hard it is to do the work and and and the second part that question is where does one go if one wants to get like traitor accounting expertise ok so I'll answer the first part I don't think that if you have five thousand trades it puts you in any risk if anything it helps you to qualify the trader which is what you want one of the criterias that we go through it how many trades have you done last year ok so the reason these accountants that get you know excited or scared is because they are not familiar with trader status they don't have a lot of traders and to be frank with you most America is 90 something plus percent are not traders they may be trade from time to time or they have a financial advisor which is you know better of course 99.999 that's the number not traitors so therefore 99.99 of accountants are not familiar with trader status so you really have to go with someone who specializes in that you know someone like us a firm like us there's other firms out there there's not a lot of firms out there I mean there's you know maybe a few big firms and then all individuals are offended you really have to find that right for a professional that can do that and knows about all the ins and out of trader status I wouldn't be scared from being somebody with 10,000 trade the contrary I'm excited there you go there's a guy who can probably have a high chance of qualifying the trade so there's no there's no risk with that now where do you find these people you know how many I'm not gonna recommend other companies but we wrote a tax Pro's we uh we help people like that all the time we educate people we actually even have class about this and how you can qualify what are the rules to go through port cases to go through different element it's very detailed and new one but obviously for people do a lot of trades Palace trades is very easy to quell awesome I got one last question up here it's kind of a specific question so let's throw it up there Linda what percentage of my IRA either rollover or contributory can I have in an MLP is that a master limited partnership correct without having to file k once okay so this question is mistakenly poses what percentage first of all you everybody should know you can invest in an IRA in an MMO P and will feel like you said it's a master limited partnerships they're usually all these oil-drilling things usually set up us partnership the thing with the partnership is you know that the partnership doesn't have doesn't pay tax on itself the partners do so basically what happens is that this person is going to get his k1 or hurricane one is a good character IRA is going to get a k1 from the MLP there's a problem here because nobody ever paid taxes on it so there is a it's redundant to invest in an LLP through an IRA there's different views out there she saw the web you'll see different views I my position is it it's probably not smart to do it but used to investing in a tax deferred account in a tax deferred account and you take your attacks to for investment and investing the tax deferred account you're not doing anything because eventually when he's going to take the money out from the era he's going to pay tax but more than this he may be subject to what we called you've dpi which is unrelated business income tax which means that in a retirement account you can have various investments but some investments even though account effect the fridge you'll still pay cash so you gotta be careful it's not a percentage whether he has 5% of 2% he's gonna get a k1 he doesn't have to file a k1 info Mike um it's been unbelievable that's great information if somebody wanted to reach you okay yeah and just because they have more questions and the one thing that we will not do here on taste sure because we can't we're not qualified nor do we want even touch that thing if somebody had a question would you mind if somebody emailed you or or how would somebody check you out if they wanted to well they can go to a website they will have all the information how to contact at this OTA tax Pro's calm we actually have free webinars from time to time we have one today actually I think at 3 o'clock and one next week and they can call us and they can and they can email us at info at OTA tax pros.com OTA tax Pro's calm it's it's been up there the okay cuz it's been able covers it Mike I got two quick questions just given to you can answer them pretty quickly one um do indexes still have the 60/40 tax break for next year and then the other one would be if you have a full-time job can you still classify as a traitor kind of one-word answers for me sure uh yes Celinda 60/40 is still applicable as the Congress changed it and uh the second question even if you have a full-time job you can still qualify we just have to structure a little bit differently perfect Micah taste thank you very much you are also guy thank you happy new year hey happy new you we are going to take a good it's great we kept it moving it was good we are gonna take a very short break we are going to come back with good trade bad trade lots of different things on our plate here option wise here so we're back in a couple seconds you

Channel: tastytrade

Views: 30,392

Rating: 4.8295083 out of 5

Keywords: taxes, trading, taxes and trading, stocks and taxes, tastytrade, tax laws, tastytrade.com, trader status, elect trader status?, write off losses

Id: J1SrqsS3NIM

Length: 17min 34sec (1054 seconds)

Published: Thu Dec 13 2012