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8/3/2019 Tax Efficient Trading Plan
1/17
5/19/201
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
http://tradersaccounting.blogspot.com/
8/3/2019 Tax Efficient Trading Plan
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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
Expenses an Active Trader in BusinessMight Take
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
Expenses an Active Trader in BusinessMight Take
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
8/3/2019 Tax Efficient Trading Plan
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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
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
Classification of TradersClassification of Traders
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
Classification of TradersClassification of Traders
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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Trader in SecuritiesTrader in Securities
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
Trader in SecuritiesTrader in Securities
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
Trader in SecuritiesTrader in Securities
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.
Free 30 minute consultation with one of our advisorsto ascertain which business would be the most taxefficient for you to trade in!
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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Mark to MarketMark to Market
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
Mark to MarketMark to Market
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
8/3/2019 Tax Efficient Trading Plan
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5/19/201
Thank You For AttendingThank You For Attending
Jim Crimmins
800-938-9513