Congress is keeping us CPA's very busy lately following the new tax laws. Here is a summary of the new tax laws in the American Recovery and Reinvestment Act of 2009 (ARRA). They may not necessarily apply to your day trading business but they could still put money in your trading account.
First, the new home buyer provision that we have all heard about. $8000 credit if purchased in 2009 on first time principal residence and does not have to be repaid unless you move out or sell within 36 months of the purchase date.
$250 payments or credit on your 2009 tax return to individuals eligible for Social Security, veteran's compensation or pension benefits from November 2008 to January 2009 (have to be a US Resident).
Small businesses with a net operating loss (NOL) in 2008 can elect to offset this loss against income earned in up to five prior years. Typically, an NOL can be carried back for only two years.
Individuals with children under the age of 17 may be eligible for an increased child tax credit. The minimum earned income amount used to calculate the tax credit has been lowered so more people are eligible for the credit.
You can deduct sales tax paid on your new vehicle purchase or if you do not live in a state with sales tax you can deduct other taxes and fees.
If you are interested in how you could benefit from the new tax laws, please feel free to contact me. There are other benefits in the ARRA of 2009 that I have not covered here.
-Courtney Kurisko
Certified Public Accountant
Thursday, June 18, 2009
Monday, March 23, 2009
475 f election - statement to attach
For entities:
The following statement should be stated in the entities books and records within 75 days of formation. Also attach a copy of it to the 2009 tax return filed in 2010.
The statement must include the following information.
1. That you are making an election under section 475(f) of the Internal Revenue Code.
2. The first tax year for which the election is effective.
3. The trade or business for which you are making the election.
4. That the election only applies to securities and not to futures.
Do not file form 3115. The entity is not making a change to their accounting method.
For individuals:
Attach a statement including the following:
The statement must include the following information.
1. That you are making an election under section 475(f) of the Internal Revenue Code.
2. The first tax year for which the election is effective.
3. The trade or business for which you are making the election.
4. That the election only applies to securities and not to futures.
The statement should be filed by April 15th 2009 for 2009 tax year. This means it should be attached to your extension or tax return. Form 3115 does not get filed at this time, it gets filed with your 2009 tax return in 2010.
For both entities and individuals:
If you made the mark-to-market election, you should report all gains and losses from trading as ordinary gains and losses in Part II of Form 4797, instead of as capital gains and losses on Schedule D. In that case, securities held at the end of the year in your business as a trader are marked to market by treating them as if they were sold (and re-acquired) for fair market value on the last business day of the year. The wash sale rules no longer apply if you make the election.
This information is only a guide as to how you approach filing as a day trader. Please consult your tax preparer for more information or contact me at ckaccountants@yahoo.com
The following statement should be stated in the entities books and records within 75 days of formation. Also attach a copy of it to the 2009 tax return filed in 2010.
The statement must include the following information.
1. That you are making an election under section 475(f) of the Internal Revenue Code.
2. The first tax year for which the election is effective.
3. The trade or business for which you are making the election.
4. That the election only applies to securities and not to futures.
Do not file form 3115. The entity is not making a change to their accounting method.
For individuals:
Attach a statement including the following:
The statement must include the following information.
1. That you are making an election under section 475(f) of the Internal Revenue Code.
2. The first tax year for which the election is effective.
3. The trade or business for which you are making the election.
4. That the election only applies to securities and not to futures.
The statement should be filed by April 15th 2009 for 2009 tax year. This means it should be attached to your extension or tax return. Form 3115 does not get filed at this time, it gets filed with your 2009 tax return in 2010.
For both entities and individuals:
If you made the mark-to-market election, you should report all gains and losses from trading as ordinary gains and losses in Part II of Form 4797, instead of as capital gains and losses on Schedule D. In that case, securities held at the end of the year in your business as a trader are marked to market by treating them as if they were sold (and re-acquired) for fair market value on the last business day of the year. The wash sale rules no longer apply if you make the election.
This information is only a guide as to how you approach filing as a day trader. Please consult your tax preparer for more information or contact me at ckaccountants@yahoo.com
Thursday, February 12, 2009
Day Trader vs. Investor - IRS discussion
This is directly from the IRS web site and it details the difference between a Day Trader and an Investor.
http://www.irs.gov/taxtopics/tc429.html
Topic 429 - Traders in Securities (Information for Form 1040 Filers)
This tax topic explains whether an individual who buys and sells securities qualifies as a "trader in securities," and how traders must report the income and expenses resulting from the trading business. In order to better understand the special rules that apply to traders in securities, it is helpful to first review the meaning of the term "investor," and the manner in which investors report the income and expenses relating to their investment activities.
Investors typically buy and sell securities and expect income from dividends, interest, or capital appreciation. Sales of these securities result in capital gains and losses that must be reported on Form 1040, Schedule D (PDF), Capital Gains and Losses. Investors are subject to the capital loss limitations described in section 1211(b), in addition to the section 1091 wash sales rules. Investors can generally deduct the expenses of producing taxable investment income. These include expenses for investment counseling and advice, legal and accounting fees, and investment newsletters. These expenses are deductible on Form 1040, Schedule A (PDF), Itemized Deductions, as miscellaneous deductions to the extent that they exceed 2% of adjusted gross income. Interest paid on money to buy or carry investment property that produces taxable income is also deductible on Schedule A, but under section 163(d) the deduction cannot exceed the net investment income. Commissions and other costs of acquiring or disposing of securities are not deductible but must be used to figure gain or loss upon disposition of the securities. An investor is not subject to self-employment tax. For more information on investors, refer to Publication 550, Investment Income and Expenses.
Traders
Special rules apply if you are a trader in securities, in the business of buying and selling securities for your own account. To be engaged in business as a trader in securities, you must meet all of the following conditions:
* You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation.
* Your activity must be substantial, and
* You must carry on the activity with continuity and regularity.
The following facts and circumstances should be considered in determining if your activity is a securities trading business:
* Typical holding periods for securities bought and sold.
* The frequency and dollar amount of your trades during the year.
* The extent to which you pursue the activity to produce income for a livelihood, and
* The amount of time you devote to the activity.
If the nature of your trading activities does not qualify as a business, you are considered an investor, and not a trader. It does not matter whether you call yourself a trader or a "day trader." Further, a taxpayer may be a trader in some securities and hold other securities for investment. The special rules for traders do not apply to the securities held for investment. A trader must keep detailed records to distinguish the securities held for investment from the securities in the trading business. The securities held for investment must be identified as such in the trader's records on the day he or she acquires them.
Traders report their business expenses on Form 1040, Schedule C (PDF), Profit or Loss From Business. The limit on investment interest expense, which applies to investors, does not apply to interest paid or incurred in a trading business. Commissions and other costs of acquiring or disposing of securities are not deductible but must be used to figure gain or loss upon disposition of the securities. Gains and losses from selling securities as part of a trading business are not subject to self–employment tax.
The tax treatment of sales of securities held in connection with a trading business depends on whether a trader has previously made an election under section 475(f) to use the mark-to-market method of accounting. If the mark-to-market election was not made, then the gains and losses from sales of securities are treated as capital gains and losses that must be reported on Form 1040, Schedule D (PDF). Both the limitations on capital losses and the wash sale rules continue to apply. However, if the mark-to-market election was timely made, then the gains and losses from sales of securities are treated as ordinary gains and losses (except for securities held for investment — see above) that must be reported on Part II of Form 4797 (PDF), Sales of Business Property. Further, neither the limitations on capital losses nor the wash sale rules apply to traders using the mark-to-market method of accounting.
In general, the mark-to-market election must be made by the due date (not including extensions) of the tax return for the year prior to the year for which the election becomes effective. The election is made by attaching a statement either to your income tax return or to a request for an extension of time to file your return. The statement should include the following information:
1. That you are making an election under section 475(f) of the Internal Revenue Code;
2. The first tax year for which the election is effective; and
3. The trade or business for which you are making the election.
Refer to the Form 1040, Schedule D Instructions for further instructions on how to make the mark to market election.
After making the election to change to the mark-to-market method of accounting, you must change your method of accounting for securities under Revenue Procedure 2002–9. In addition to making the election, you will also be required to file a Form 3115 (PDF), Application for Change in Accounting Method. The procedures for making an election are described in Publication 550 under the section called "Special Rules for Traders in Securities", and FAQ's on our Web site.
http://www.irs.gov/taxtopics/tc429.html
Topic 429 - Traders in Securities (Information for Form 1040 Filers)
This tax topic explains whether an individual who buys and sells securities qualifies as a "trader in securities," and how traders must report the income and expenses resulting from the trading business. In order to better understand the special rules that apply to traders in securities, it is helpful to first review the meaning of the term "investor," and the manner in which investors report the income and expenses relating to their investment activities.
Investors typically buy and sell securities and expect income from dividends, interest, or capital appreciation. Sales of these securities result in capital gains and losses that must be reported on Form 1040, Schedule D (PDF), Capital Gains and Losses. Investors are subject to the capital loss limitations described in section 1211(b), in addition to the section 1091 wash sales rules. Investors can generally deduct the expenses of producing taxable investment income. These include expenses for investment counseling and advice, legal and accounting fees, and investment newsletters. These expenses are deductible on Form 1040, Schedule A (PDF), Itemized Deductions, as miscellaneous deductions to the extent that they exceed 2% of adjusted gross income. Interest paid on money to buy or carry investment property that produces taxable income is also deductible on Schedule A, but under section 163(d) the deduction cannot exceed the net investment income. Commissions and other costs of acquiring or disposing of securities are not deductible but must be used to figure gain or loss upon disposition of the securities. An investor is not subject to self-employment tax. For more information on investors, refer to Publication 550, Investment Income and Expenses.
Traders
Special rules apply if you are a trader in securities, in the business of buying and selling securities for your own account. To be engaged in business as a trader in securities, you must meet all of the following conditions:
* You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation.
* Your activity must be substantial, and
* You must carry on the activity with continuity and regularity.
The following facts and circumstances should be considered in determining if your activity is a securities trading business:
* Typical holding periods for securities bought and sold.
* The frequency and dollar amount of your trades during the year.
* The extent to which you pursue the activity to produce income for a livelihood, and
* The amount of time you devote to the activity.
If the nature of your trading activities does not qualify as a business, you are considered an investor, and not a trader. It does not matter whether you call yourself a trader or a "day trader." Further, a taxpayer may be a trader in some securities and hold other securities for investment. The special rules for traders do not apply to the securities held for investment. A trader must keep detailed records to distinguish the securities held for investment from the securities in the trading business. The securities held for investment must be identified as such in the trader's records on the day he or she acquires them.
Traders report their business expenses on Form 1040, Schedule C (PDF), Profit or Loss From Business. The limit on investment interest expense, which applies to investors, does not apply to interest paid or incurred in a trading business. Commissions and other costs of acquiring or disposing of securities are not deductible but must be used to figure gain or loss upon disposition of the securities. Gains and losses from selling securities as part of a trading business are not subject to self–employment tax.
The tax treatment of sales of securities held in connection with a trading business depends on whether a trader has previously made an election under section 475(f) to use the mark-to-market method of accounting. If the mark-to-market election was not made, then the gains and losses from sales of securities are treated as capital gains and losses that must be reported on Form 1040, Schedule D (PDF). Both the limitations on capital losses and the wash sale rules continue to apply. However, if the mark-to-market election was timely made, then the gains and losses from sales of securities are treated as ordinary gains and losses (except for securities held for investment — see above) that must be reported on Part II of Form 4797 (PDF), Sales of Business Property. Further, neither the limitations on capital losses nor the wash sale rules apply to traders using the mark-to-market method of accounting.
In general, the mark-to-market election must be made by the due date (not including extensions) of the tax return for the year prior to the year for which the election becomes effective. The election is made by attaching a statement either to your income tax return or to a request for an extension of time to file your return. The statement should include the following information:
1. That you are making an election under section 475(f) of the Internal Revenue Code;
2. The first tax year for which the election is effective; and
3. The trade or business for which you are making the election.
Refer to the Form 1040, Schedule D Instructions for further instructions on how to make the mark to market election.
After making the election to change to the mark-to-market method of accounting, you must change your method of accounting for securities under Revenue Procedure 2002–9. In addition to making the election, you will also be required to file a Form 3115 (PDF), Application for Change in Accounting Method. The procedures for making an election are described in Publication 550 under the section called "Special Rules for Traders in Securities", and FAQ's on our Web site.
Monday, February 2, 2009
Year End Tax Planning for Day Traders
It is that time of year again! If you qualify as a day trader, here are some things you should understand:
1) If you did not make the mark to market election or form a corporation for day trading, your trades will be reported on Schedule D and your expenses related to your trading business will be reported on Schedule C. This means that your accountant will need expenses such as internet, dues and subscriptions, hardware expenses, trading software, investment publications, margin interest (100% on Schedule C), educational, etc. You will need to attach a statement to your schedule C business since it will be showing a loss. The statement should explain that your income (if you have gains) is reported on schedule D.
2) If you did make the Mark to Market election for 2008, then your gains and losses should be reported on Part II of Form 4797 (Sales of Business Property). Also attach a statement to your Schedule C (see #1). The election had to be made by April 15th of 2008 for the tax year ending 2008, unless you formed a trading corporation during the year. So if you had losses for 2008, you may want to reconsider not making the election for 2009 also. This is something to discuss with a CPA.
3) If you are making the Mark to Market election for 2009, you will need to attach Form 3115 to your tax return or extension by April 15th, 2009 since it is a change in accounting method.
Hopefully your broker will be able to provide a schedule of your gains and losses for the year. Your brokerage statement will not be available this year until after February 15, 2009 due to current tax law changes. If you made the Mark to Market election, you will have adjust the statement that your broker gives you to disregard the wash sale rule and to adjust the securities that you were holding as of 12/31/08 to the market value. Make sure to report these separately.
CK Accounting Tax Service has the ability to assist you in filing your day trader taxes, make the market to market election and compile either your schedule D or Form 4797. I use software that allows me to make the Mark to Market election and disregard the wash sales.
Please contact me at ckaccountants@yahoo.com if you would like to discuss further.
-Courtney Kurisko
Certified Public Accountant
1) If you did not make the mark to market election or form a corporation for day trading, your trades will be reported on Schedule D and your expenses related to your trading business will be reported on Schedule C. This means that your accountant will need expenses such as internet, dues and subscriptions, hardware expenses, trading software, investment publications, margin interest (100% on Schedule C), educational, etc. You will need to attach a statement to your schedule C business since it will be showing a loss. The statement should explain that your income (if you have gains) is reported on schedule D.
2) If you did make the Mark to Market election for 2008, then your gains and losses should be reported on Part II of Form 4797 (Sales of Business Property). Also attach a statement to your Schedule C (see #1). The election had to be made by April 15th of 2008 for the tax year ending 2008, unless you formed a trading corporation during the year. So if you had losses for 2008, you may want to reconsider not making the election for 2009 also. This is something to discuss with a CPA.
3) If you are making the Mark to Market election for 2009, you will need to attach Form 3115 to your tax return or extension by April 15th, 2009 since it is a change in accounting method.
Hopefully your broker will be able to provide a schedule of your gains and losses for the year. Your brokerage statement will not be available this year until after February 15, 2009 due to current tax law changes. If you made the Mark to Market election, you will have adjust the statement that your broker gives you to disregard the wash sale rule and to adjust the securities that you were holding as of 12/31/08 to the market value. Make sure to report these separately.
CK Accounting Tax Service has the ability to assist you in filing your day trader taxes, make the market to market election and compile either your schedule D or Form 4797. I use software that allows me to make the Mark to Market election and disregard the wash sales.
Please contact me at ckaccountants@yahoo.com if you would like to discuss further.
-Courtney Kurisko
Certified Public Accountant
Friday, January 23, 2009
Year End Tax Summary coming next week
Hi Everyone,
I just wanted to let you know that a summary of year end tax preparation will be posted next week. I have neglected my blog this last month and will be keeping everyone current starting next week.
-Courtney Kurisko
I just wanted to let you know that a summary of year end tax preparation will be posted next week. I have neglected my blog this last month and will be keeping everyone current starting next week.
-Courtney Kurisko
Wednesday, December 17, 2008
How to report Section 1256 contracts (futures)
According to IRS Publication 550, a "Section 1256 Contract" is a regulated futures contract, foreign currency contract, or a non-equity option. All of these are marked to the market value at the end of the tax year. This is not the same as making the mark to market election (475f). These trading instruments are reported on Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles) and not schedule D with stock sales. They are considered 60% long term capital gain or loss and 40% short term capital gain or loss for tax purposes. That is good news for 60% of your gains!! More good news is that you do not need to submit the detail of your trades for these instruments to the IRS!! But, you do need to have them on file for 7 years in case the IRS would like to see the detail.
Also, a special carry back rule applies to Section 1256 contracts. You can carry back the losses for 3 years if you have a Section 1256 gain in those years. You cannot create a net operating losses but you can offset the gains in those years.
Should you have any further questions, please contact me at ckaccountants@yahoo.com.
Best,
Courtney Kurisko
Also, a special carry back rule applies to Section 1256 contracts. You can carry back the losses for 3 years if you have a Section 1256 gain in those years. You cannot create a net operating losses but you can offset the gains in those years.
Should you have any further questions, please contact me at ckaccountants@yahoo.com.
Best,
Courtney Kurisko
Thursday, November 13, 2008
Las Vegas Trade Show
With the Las Vegas trade show approaching next week, I thought I would give a little information as to the deductions available for traveling to the trade show. And if you have a booth at a trade show and plan on selling anything, there a few things you should know.
Trade Show Deductions
If you trip is 100% business, then it is 100% deductible (except meals and entertainment at 50%). This includes your airfare, lodging, registration expenses, tips, business calls, dry cleaning, etc.
If your trip is 70% business and 30% fun, then take the ratio of all of your expenses. For example, you are staying a few days after the trade show or only going to the trade show for 2 days instead of the full 4 days, then half of your expenses would be deductible.
Selling Products or Services at the Trade Show
If you are planning on selling services at the trade show in Las Vegas next week, you are exempt from sales tax but you still have to file for a business license. You can do this online at http://tax.state.nv.us/ and the fee is $100. If you are selling goods at the show, you have to file for a business license and sales tax. Although, if you are a home based sole proprietor with a NET income of less than $26,400 then you are exempt from having to file for a business license.
I hope this information helps everyone headed to the trade show. If you have further questions or you are looking for an accountant that specializes in Securities Traders, please email me at ckaccountants@yahoo.com
Best,
Courtney Kurisko
Trade Show Deductions
If you trip is 100% business, then it is 100% deductible (except meals and entertainment at 50%). This includes your airfare, lodging, registration expenses, tips, business calls, dry cleaning, etc.
If your trip is 70% business and 30% fun, then take the ratio of all of your expenses. For example, you are staying a few days after the trade show or only going to the trade show for 2 days instead of the full 4 days, then half of your expenses would be deductible.
Selling Products or Services at the Trade Show
If you are planning on selling services at the trade show in Las Vegas next week, you are exempt from sales tax but you still have to file for a business license. You can do this online at http://tax.state.nv.us/ and the fee is $100. If you are selling goods at the show, you have to file for a business license and sales tax. Although, if you are a home based sole proprietor with a NET income of less than $26,400 then you are exempt from having to file for a business license.
I hope this information helps everyone headed to the trade show. If you have further questions or you are looking for an accountant that specializes in Securities Traders, please email me at ckaccountants@yahoo.com
Best,
Courtney Kurisko
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