Tax Tips For Traders

Articles:

Trade as a Business Entity and Reap the Benefits

Advantages of using a C Corporation for your trading business

Trader Tax Forms: The Right Paperwork Can Protect Your Trader Tax Status

Traders Enjoy Healthy Deductions for Medical Expenses

You Say You’re a Trader? Be Prepared to Prove It to the IRS!

How Do You Qualify as a Trader?

How to Deduct the Maximum Amount of Trader Expenses

The Power of Mark to Market Accounting

Eight Steps to Successful Trader Tax Filing

Futures: What You Trade Determines How You’re Taxed

Traders Will Feel Effects of Non-Trader Tax Changes

Retirement Options for Traders

How to Calculate Capital Gains for Traders and Investors

Travel Expenses: Hit the Road to Tax Deductions

Even "Worthless" Stock has value at tax time

Medical Reimbursement Plans: Big Savings for Small C Corporations

Who Says You Can't Trade Your IRA on Margin?

Mark -to- Mark et Makes a Magical Difference for Most Traders

Trade as a Business Entity and Reap the Benefits

Using Legal Entities for Your Trading Capital

The Internal Revenue Service has two tax codes: one for businesses, the other for individuals. Because businesses grow money both by paying taxes and employing other taxpayers, they are rewarded and encouraged through a benevolent tax code. Individuals, however, are treated far more harshly by routine tax hikes and diminishing deductions.

As a trader, your livelihood could hinge upon your ability to prove to the IRS that your trading enterprise is a legitimate business. Fail that and you risk a domino effect whereby your trader tax status is denied, your mark-to-market accounting method is disallowed, and your ordinary losses suddenly loom catastrophic thanks to the $3,000 capital loss limit.

Yes, you can legally conduct your trading business as a sole proprietorship. But with so many cards stacked against you not the least being the IRS' vague and ever-changing definition of what constitutes a trader for tax purposes the far more prudent course is to conduct your trading through a more formal legal entity.

The rewards and reassurance of trading through a business entity so outweigh the risks and uncertainty of a sole proprietorship that the question is not why should you form a legal entity, but why wouldn't you?

What Are Legal Entities?

There are five primary legal entity structures: sole proprietorship, limited partnership, limited liability company (LLC), S corporation and C corporation. Entities must be registered within the state where business is conducted. If you pay payroll to fund retirement accounts or medical insurance, your entity must be registered in your home state; in rare cases, however, some traders may wish to register their entity in a state that does not tax entity income. States and municipalities typically require legal entities to file documents, place advertisements and pay a fee to establish their legal formation.

For tax purposes, a legal entity is an organization recognized by the IRS by its corresponding Employer Identification Number, whether it has employees or not. Sole proprietors often use their Social Security number as their Employer Identification Number.

Sole Proprietorships: Risky Business

Trading as a sole proprietor is a little like walking a tightrope without a net: one misstep and it's a long, fast fall.

What makes a sole proprietorship so risky for traders is the precarious nature of trader tax status. Because neither Congress nor the IRS has clearly defined what constitutes a trader, the guidelines continue to evolve through tax court case law. As a result, the trader status you enjoyed last year may not protect you and your business this year. The guidelines are largely based on cases involving individual taxpayers (sole proprietors), which the IRS typically view with far more suspicion than more formal business entities.

Sole proprietors also are more exposed than legal entities to personal financial risk. Because your personal and business assets are not separated, a business misstep could cost you your house, your vehicle and other personal assets.

Sole proprietors also are at a disadvantage come tax time. Because trading income is not considered self-employment income, you are not allowed to make tax-advantaged retirement contributions with it. Tax deductions are extremely limited for sole proprietors as well. Sole proprietors who do not select mark-to-market accounting are put in an odd position of reporting income on Schedule D as capital gain, but expenses on Schedule C as ordinary income, a discrepancy that can draw unwanted attention from the IRS.

Legal Entities Savor the Tax Savings

The chief reason to form a legal entity is to stabilize your business activities and expense deductions. Without a business entity to call home, your trader tax status could turn on the ruling of the next tax court judge. The tax status of legal entities however is well defined by the IRS; no more worrying whether you are suddenly going to face a different and unfavorable tax status.

By forming a legal entity and choosing the mark-to-market accounting method, your business deductions can range from $10,000-$20,000 annually. [Of course, that is just an average amount, and many of our tax clients have business expenses either lower or greater than that amount] Should you experience substantial losses, you'll be able to fully deduct those as ordinary losses as well, thanks to the $3,000 capital gains waiver.

Legal Entity vs. Sole Proprietorship

How much can you save by trading as a legal entity? The short answer is plenty. Here is a hypothetical case that illustrates the financial advantages of a legal entity ("Business") that has elected mark-to-market accounting verses a sole proprietor ("Investor") who has not:

Let's say you have $100,000 in income, $24,230 in expenses and a 30% tax bracket. On a $40,000 gain, as an investor you would qualify for $1,152 in tax savings, while as a business you would reap more than six times that $7,269 in tax savings. On a $40,000 loss, as an investor you would realize $3,700 in tax deductions, while as a business you would deduct the full amount of your loss, a whopping $64,230.

The bottom line: Whether you have a gain or a loss, trading as a business entity has clear advantages over the uncertainty and possible loss of trader tax status at stake for sole proprietors.

Which Entity to Choose?

While the benefits of trading as a legal entity are numerous, there is no one legal entity or structure that is right for everyone. A Traders Accounting 'Tax Action Plan' can help you determine if a limited liability company, a C corporation, or a combination of the two will most benefit your trading business.

Click here for a free Tax Action Plan

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Advantages of using a C Corporation
for your trading business

Incorporation May Make Sense in the Long Run

When it comes to securing your business status in the eyes of the Internal Revenue Service, nothing carries more weight than the initials “Inc.” Incorporation elevates you as an enterprise with a vision, one that plans to grow, flourish and pay your fair share of taxes for years to come. Not all corporations are big, but the word sure sounds big, doesn’t it?

Traders who operate as a corporation enjoy a number of corporate benefits, including personal asset protection, the maximum allowable business deductions (including 100% of your medical bills), and the ability to amortize pre-existing and start-up expenses and depreciate business assets.

The price for these corporate perks, of course, is double taxation; because a corporation is not a “flow-through” entity, it is taxed, albeit at a more favorable rate than individuals. Still, with a little tax planning, even the corporate tax bite can be minimized, making incorporation a very attractive entity for many traders.

How Incorporation Works

When you file articles of incorporation with your Secretary of State, you create a separate legal entity that has the power to enter into contracts, buy and sell real estate, sue and be sued, and even commit a crime. Like any other individual, a corporation also pays its own taxes; its shareholders (owners), board of directors (managers) and officers (who oversee day-to-day operations) are not responsible for corporate liabilities, though they may be held liable at the personal or positional level in instances of fraud or when personal services are rendered.

In most states, you can legally form a one-person corporation in which you function as sole director and officers, or you may include family members or other parties. But even (and especially) a one-person corporation must meet the minimum requirements of incorporation (holding and recording minutes of annual meetings; maintaining separate books and records; issuing stock to shareholders) to preserve your personal asset protection.

A C corporation designation refers to the standard, for-profit, state-formed entity as described above. An S corporation status, obtained by filing IRS Form 2553 and a similar form in some states, converts the C corporation into a flow-through entity whereby the corporation’s income flows through to the individual shareholders’ tax returns. Be aware, however, that this change in status also changes the deductibility rules; for instance, medical reimbursements cannot be deducted in an S corporation.

An S corporation designation must be filed by March 15 for calendar-year taxpayers for the election to take effect, except in the case of new corporations, which have 75 days from start of business. S corporation status has some additional provisions: all shareholders must be U.S. citizens or have U.S. resident status, the number of shareholders may not exceed 75, and the S corporation may only issue one class of stock.

Unlike limited partnerships and LLCs, a corporation can continue indefinitely; its existence is unaffected by the death or incapacity of its shareholders, directors or officers, or by the transfer of its shares.

Advantages of a C Corporation

A C corporation is a good selection for traders who want to grow their wealth by reinvesting their profits for the long haul instead of taking dividends (and a double tax hit) for short-term needs, as long as they are not too profitable and their accumulated retained earnings do not exceed $250,000.

One of the main advantages of a C corporation is that it has its own tax brackets, so that instead of your trading gains being taxed at your personal tax rate, the first $50,000 in profits from your C corporation are taxed at just 15%.

Here are other advantages of a C corporation:

Advantages of an S Corporation

An S corporation offers an additional advantage: self-employment tax savings. By electing the S corporate status, only the earnings actually paid out to you as salary are subject to payroll taxes; money left in the business is not subject to payroll taxes or self-employment tax. All income passes through, but its tax status depends on whether it is classified as salary or ordinary income.

Here’s an example: If you had net income of $60,000 and paid yourself $40,000 in salary, leaving $20,000 in the business, as a sole proprietor you would pay self-employment tax on the full $60,000 ($60,000 x 15.3% = $9,180). But as a corporation, you would only owe self-employment tax on the $40,000 in salary ($40,000 x 15.3% = $6,120), resulting in a savings of $3,060.

Disadvantages of Incorporating

There are two main disadvantages to incorporation: double taxation and corporate requirements.

Here’s how double taxation can sting you: A corporation is taxed on its profits. When profits are paid out in the form of dividends, they are taxed again to the recipient as dividend income at the individual’s income tax rate.

To work around this double tax, most small corporations pay few or no dividends. Instead, they pay salaries and fringe benefits to their owners, which are then deductible to the corporation.

Unfortunately, there is no easy way around the formalities of remaining in compliance with the general corporation law of your state. In most instances, you are required at a minimum to file formal articles of incorporation, elect a board of directors and appoint officers. You will be required to hold an annual meeting at least, and keep minutes of all meetings, as well as maintain separate corporate records and bookkeeping.

What sounds like a lot of work is actually pretty minimal when you consider that most trader corporations are one- or two-person entities. As long as you are willing to assign titles, hold a meeting or two and keep your records current, you can be your own corporation without undue hardship or paperwork.

Is incorporating right for every trader? Of course not; in the trading industry, there is no cookie-cutter, one-size-fits-all legal entity. Each trader is different, which is why it is important to seek the advice of the tax professionals at Traders Accounting before making any organizational decisions. We have the unique combination of tax expertise and comprehensive understanding of your unique status as a trader to help you make the decisions that are right for you.

While the benefits of trading as a legal entity are numerous, there is no one legal entity or structure that is right for everyone. A Traders Accounting 'Tax Action Plan' can help you determine if a limited liability company, a C corporation, or a combination of the two will most benefit your trading business.

Click here for a free Tax Action Plan

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Trader Tax Forms: The Right Paperwork Can Protect Your Trader Tax Status

Trader income tax preparation can be overwhelming for the first-time filer. Even many experienced traders prefer to entrust their federal income tax return to Traders Accounting’s tax professionals rather than battle it alone. You know trading; we know trader taxes. It’s just common sense.

But all traders can benefit from a general familiarity with these key Internal Revenue forms and procedures that comprise a typical trader's tax return:

Mark-to-Market Election

Mark-to-market (MTM) accounting enables a trading business to change the tax status of their earnings from capital gains/losses to ordinary income/losses, thereby avoiding the $3,000 capital loss limitation and the wash sale rule.

To elect mark-to-market as your accounting method, you must enclose a statement of intent with your personal tax return (if you are going to file as a trader in securities) or extension request and file by the appropriate tax deadline (March 15 or April 15) the year prior to beginning MTM accounting. For example, to use MTM on your 2004 return, you would have to have elected mark-to-market by April 15, 2004.

The one exception: if you’re filing as a new business entity, such as a limited liability company or C corporation, you have two months from opening to note your accounting preference in your meeting minutes; you need not notify the IRS until the next tax deadline.

We highly recommend that anyone confer with their tax professional prior to making the MTM election. While it seems like a panacea for a trader, that is not always the case, and an extra set of eyes that understands the code could help you not make a huge mistake.

Form 3115: Application for Change in Accounting Methods

Your first year using MTM, you will file IRS Form 3115, Application for Change in Accounting Methods, and submit it with your tax return. This form contains a one-time adjustment, Section 481(a), which captures duplications and omissions resulting from the change in accounting methods. If the adjustment is $25,000 or less, you may deduct the full amount on your return; if it exceeds $25,000, you may deduct 25% each year for the next four years.

Schedule C: Profit or Loss from Business

Traders who file as sole proprietors and do not elect the mark-to-market accounting method report their expenses on Schedule C, Profit or Loss from Business, but their trades on Schedule D, Capital Gains and Losses. This unfortunately can lead to an audit since you are only showing expenses on Schedule C with no income (it goes on Schedule D. Most businesses that file a schedule C also show their income on the same form, but for a trader this is not possible. If this seems somewhat odd, it is; the discrepancy appears suspect to the IRS, too.

One way to avoid this awkward tax position is to trade under a more formal business entity (limited partnership, LLC or C corporation). Tax treatment of business entities is both more favorable and more routine.

Schedule D: Capital Gains and Losses

Traders in stocks, options and single-stock futures who do not elect mark-to-market accounting report their trading activity on Schedule D, Capital Gains and Losses.

Schedule D contains two parts: short-term capital gains/losses for assets held less than one year, and long-term capital gains/losses for assets held more than one year. This also is the form on which wash sale adjustments are recorded. Because trading activity often involves buys and sells of unequal shares, calculations of gain or loss must be broken down into the smallest number of shares on either the buy or sell side, which can be a time-consuming and tedious process.

If your trading activity is significant enough to warrant trader tax status, chances are Schedule D will appear an overwhelmingly difficult form to complete without an experienced trader tax professional.

Traders Accounting will soon introduce an electronic trader’s log that will greatly simplify the process of reporting trading activity on your IRS returns.

Form 4797: Sales of Business Property

Traders in stocks, options and single-stock futures who elect mark-to-market accounting report their trading activity on Form 4797, Sales of Business Property (Also Involuntary Conversions and Recapture Amounts Under Sections 179 and 280F(b)(2)).

Under the mark-to-market method, all securities that you hold at the end of the year are treated as if they were sold and repurchased on the last day of the year; they are “marked to market” for tax purposes. All trading activity should be entered under Section II of Form 4797, Ordinary Gains and Losses.

Note: long-term investments that are not part of your trading business should be entered on Schedule D, Capital Gains and Losses, and not marked to market on Form 4797.

Form 6781: Gains and Losses from Section 1256 Contracts and Straddles

Traders in commodities, including such Section 1256 contracts as futures, foreign exchange and nonequity options, report their trading activity on Form 6781, Gains and Losses from Section 1256 Contracts and Straddles. You enter the gross amount of your Section 1256 proceeds from your 1099 on Part 1, Line 2 (Net Gain or Loss) of Section 1, Contracts Marked to Market.

The IRS cuts commodities traders a break by allowing them to split their Capital gains and losses, 60% long-term and 40% short-term. This is such an attractive deal that many commodities traders choose not to elect mark-to-market accounting, thereby retaining their profitable 60/40 split on gains. An added plus: losses on Form 6781 may be carried back three years against gains.

Form 4868: Application for Automatic Extension of Time

Tax time can be confusing, especially for the first-time active trader. But there is relief in Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. When filed by April 15, the extension automatically moves your tax deadline three months ahead, to Aug. 15. A second extension, to Oct. 15, affords you a full six months to file, but it is not automatic; you must receive the form marked “granted” back from the IRS.

Bear in mind that an extension only buys you time to file, not pay - if you don’t remit more than 90% of your estimated tax due by the original April 15 deadline, your extension will be deemed invalid.

Take it from experienced traders: don’t go it alone when it comes to filing with the IRS. One false move can cost you plenty, possibly even your trader tax status. We strongly recommend you seek the assistance of a trader tax professional at Traders Accounting this tax season.

Click here for a free Tax Action Plan

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Traders Enjoy Healthy Deductions for Medical Expenses

At tax time, many taxpayers feel like they’re giving blood to the Internal Revenue Service if not actually on life support. Traders can stem some of the bleeding thanks to a 2003 change to the tax code that allows you to deduct up to 100% of your health insurance premiums.

Individual taxpayers who are not self-employed can only deduct medical and dental expenses in excess of 7.5% over their adjusted gross income, or AGI. For example, if their AGI for the year was $40,000, the 7.5% threshold would be $3,000. Therefore only the portion of their total medical expenditures that exceed $3,000 would be deductible.

But traders who operate as sole proprietors may deduct 100% of the expenses they paid for medical and qualified long-term care insurance for themselves, their spouse and their dependents. Even better, your health care deduction as a self-employed trader is a “page one” deduction (line 31 on Form 1040 to be exact), which reduces your tax exposure upfront.

Naturally, there are restrictions. In order to qualify, you must have established the health insurance plan under your business and ended the tax year with a net profit. Your deduction for medical expenses cannot exceed your earned income from trading, and you may not claim deductions for any month in which you were eligible to participate in any subsidized health plan through an employer or your spouse. Plans that provide long-term care are treated differently from those that do not for tax purposes.

If you incurred medical or dental expenses that were not covered by your qualifying health insurance policy, you may itemize them on Schedule A. However, the total of the itemized expenses must exceed 7.5% of your AGI to be deductible.

Not all medical expenses are deductible. IRS Section 213(a) specifies that only those medical expenses pertaining to the “diagnosis, cure, mitigation, treatment, or prevention of disease” qualify for a write-off. The IRS is alert to claims for elective procedures such as tummy tucks and cosmetic surgery that do not meet one or more of these criteria. A complete A-to-Z list of deductible medical expenses may be found on IRS Publication 502 (Medical and Dental Expenses).

Partnership Plans

If you trade under a “flow-through” business entity such as a general or limited partnership, or through a limited liability company (LLC) filing as a partnership or an S Corporation in which you hold more than a 2% share, the rules are a bit different.

In these cases, your medical benefits are considered guaranteed payments to you as a partner. Therefore, the partnership is allowed to deduct the fringe benefits as an ordinary and necessary business expense. The value of the plan is included in each partner’s gross income and taxed as earned income.

You can deduct up to 100% of your medical expenses, but you must draw sufficient payroll from your partnership or S Corporation to cover the cost of your fringe benefits and your deductions are subject to the 7.5% threshold. As an S Corporation shareholder, you would also be liable for payroll taxes on your wages.

Corporate Medical Plans

If you trade out of a C Corporation, you may still deduct your family’s qualifying medical expenses, but you must sign your family members on as employees to do so. This may be problematic, however, if family health care premiums seem exorbitant or your children are not old enough to perform the tasks and/or meet the IRS requirements regarding employees.

A more efficient and economical way to accomplish the same thing within a C Corporation is to establish a medical expense reimbursement plan. This is a simple instrument by which your corporation reimburses your employees for deductible medical expenses. As an employee yourself, you can receive coverage and medical benefits, or hire your spouse and have him or her elect to cover the family. Either way, the whole family can be insured and the reimbursements are deductible as a business expense.

The cost of health care coverage is rising at an alarming rate. The tax professionals at Traders Accounting can help you choose the business entity that is right for your health insurance needs and advise you on tax-savvy ways to make your health care expenditures work for you.

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You Say You’re a Trader?
Be Prepared to Prove It to the IRS!

The first and perhaps biggest hurdle that every new trader faces come tax time is to convince the Internal Revenue Service that you are, in fact, a professional trader and not merely an overactive investor. Fail to do so and the tax consequences could severely affect how much of your earnings Uncle Sam will allow you to keep.

The IRS well knows that most traders begin as investors looking to hold securities long-term for capital appreciation and favorable long-term capital gains rates. But during the past few years as market declines made short-term investing more attractive, the IRS has held fast to the line by which it sorts out the traders from the investors.

Does it really matter which camp you fall into for tax purposes? Absolutely. Investors, who file on Schedule A, are subject to the 2% threshold for deductible investment expenses (and hence cannot write off most of their expenses) and are limited to a $3,000 capital loss deduction. But as a trader who files on Schedule C, you write off 100% of your business expenses, and if you elected the mark-to-market accounting method, can offset all of your losses against income in the same year.

As a result, traders who ended the year with a profit could save thousands thanks to their unique tax status, while those who wound up in the red could realize a windfall of $20,000 or more in same-year tax write-offs they wouldn’t be able to take as an investor.

Clearing the Trader Bar

Not surprisingly, the IRS keeps a close watch on individuals who claim the advantageous “trader in securities” tax status. Although the guidelines that separate traders from investors are far from clear, relying as they do more on appellate court rulings than IRS definition, there are certain activity profiles that the IRS is looking for before it grants trader tax status.

To qualify for trader status:

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.

To help determine if you meet these three tests, the IRS considers these qualifiers:

Typical holding periods for securities bought and sold;
Frequency and dollar amount of trades during the year;
Extent to which you pursue trading to produce income for a livelihood, and
Amount of time you devote to the activity.

Admittedly, there’s plenty of gray area in these guidelines. For instance, what exactly constitutes “substantial” activity? What are the perimeters on holding periods? Can a part-time trader claim trader tax status?

So far, the IRS has left further delineation in the hands of the tax courts, which have been inclined to uphold the denial of trader status without shedding much light on how individuals might qualify for trader status in the first place.

Three Steps to Trader Tax Status

Follow these three steps to claim and protect your trader tax status:

1. Trade: The first step to convince the IRS that you are a trader is to “seek to profit from daily market movements.” They’re looking for a pattern of high trading volume and short holding periods. Keep your personal investments well separated from your trading business. The IRS also is looking for “earnest intent;” that is, you work diligently to manage transactions, conduct strategy sessions and make frequent trades.

2. Turn: Although no exact number of transactions has been established, one tax court case found that 75 trades a year was insufficient to warrant trader tax status. The IRS is not only looking for “substantial activity,” but “frequent, regular and continuous” trading as well. That means volume. The feds need to know that you approach this as a business, not a hobby. Fail to convince them of that and you’re back in investor-land.

3. Endure. If you want to reap the benefits of the trader business status, it stands to reason that you must actually be in business and remain that way for the entire tax year. Of course, you’ll also need to convince the IRS you deserve this advantageous business status by showing a healthy flow of trades, significant dollar amounts and short holding periods, all the signs that you’re attempting to make your living as a trader. This is what constitutes “continuity and regularity.” While it may seem unfair, if you suspend business for any reason, say by taking the summer off, or you flame out as a trader after nine months, the IRS has made it very clear that they will deny your claim for trader tax status.

Best Defense: A Business Entity

Once you obtain trader tax status, you’re not entirely in the clear. Owing to the capricious nature of appellate rulings and the ever-evolving tax code, there are no guarantees that the trader status you enjoy today will still be there tomorrow.

Take Frank Chen for example, he lost his Trader Status because he did not trade consistently. Furthermore the IRS determined that if his trades were consistent he would of still lost is status because he held a second job.

One good way to avoid the Mr. Chen stumble and protect your trader tax status is to trade under a business entity. Not only is that where the biggest tax advantages reside, but a legal entity such as a C corporation or Limited Liability Company sends a strong message to the IRS that yours is an earnest and legitimate business enterprise worthy of trader tax status.

At Traders Accounting, we are both traders and accountants. Our tax professionals can help you choose the, Limited Liability Company or C Corporation that best suits your business and provides the best hedge against loss of trader tax status in the future.

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How Do You Qualify as a Trader?

How Do You Qualify as a Trader? Good Question!

If you're a new securities trader or thinking about becoming one, you're probably wondering: What's all this fuss over trader tax status? You make your trades, report your income, select your accounting method and voile - you're a trader, right?

Not exactly. Although you may buy, sell and profit in securities, futures and foreign exchange, unless you do so in such a way as to qualify for "trader in securities" status with the Internal Revenue Service, come tax time you won't be enjoying the numerous tax advantages reserved for traders only.

The fuss over trader status lays in the definition - or rather lack of definition - as to what constitutes a securities trader in the view of the IRS. In its attempt to separate true securities traders from the greater herd of hobbyists and investors, the IRS has issued a general set of guidelines. To qualify for trader status:

-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.

To help determine if you meet these three tests, the IRS considers these qualifiers:

-Typical holding periods for securities bought and sold;
- Frequency and dollar amount of trades during the year;
- Extent to which you pursue trading to produce income for a livelihood, and
- Amount of time you devote to the activity.

Clearly, these guidelines contain any number of trap doors through which the unsuspecting trader might fall at any time. For instance, what exactly is meant by "substantial" activity? Or "continuity and regularity?"

So far, the IRS has left further delineation in the hands of the tax court, whose rulings tend to uphold the denial of trader status without shedding much light on how individuals might qualify for trader status in the first place.

Courting a Consensus

Court rulings on trader status date back at least six decades:

In Higgins v. Commissioner (1941), the Supreme Court ruled that although the plaintiff had a vast operation, its primary purpose was merely to record his trades, and hence denied deductibility of his investment expenses.

In Estate of Yaeger v. Commissioner (1989), a similar large-scale, fulltime trader was denied trader status because he held his securities for long periods of time, and hence was considered an investor, not a trader.

In re Frederick R. Mayer (1994), the court ruled that Mayer, like Yaeger, was an investor because, although he bought frequently, he profited primarily from long-term holding periods.

In re Rudolph Steffler (1995), the plaintiff was denied trader status because he conducted a very small number of trades each year.

In re Stephen A. Paoli (1991), the court ruled that the plaintiff's trading activity was concentrated primarily during one time of the year with little activity occurring the rest of the year, and hence was not continuous, resulting in denial of his trader status.

In re Frank Chen (2004), the court denied trader status based in part on the fact that "securities trading was not the sole or even primary activity in which the taxpayer engaged for the production of income," casting a shadow over the status of all part-time traders.

How can you be sure that the trader tax status you enjoy today will still be there tomorrow? In lieu of specific language in the IRS code that more clearly defines the qualification for trader status, the best way is to establish a legal entity for your trading business.

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How to Deduct the Maximum Amount of
Trader Expenses

Oh, the Deductible Expenses You’ll Know as a Trader!

Repeat after me these three magic words: “ordinary, necessary and reasonable.”

These are the generously inclusive terms the Internal Revenue Service uses to determine whether the business expenses you claim on your income tax are appropriate deductions.

As a self-employed trader, in business nearly everything you purchase that has a legitimate business purpose can be deducted from your gross income on your federal income taxes, including training, medical expenses (with the appropriate business), utilities, research materials, equipment, services, supplies and all business-related travel.

There is a catch, of course. You must qualify for trader status. Otherwise, you will be treated as an investor, lose most of your potential tax write-offs to the 2% threshold for deductible investment expenses, and face the $3,000 ceiling on capital loss deduction. You could face this capital loss ceiling if you did not elect the mark to market accounting method by the April 15th deadline last year.

It can help significantly to trade as a business entity; C Corporation, Limited Partnership or an LLC are popular ways to avoid being considered a mere investor, thus losing most of those valuable deductions. At Traders Accounting we do not believe in cookie cutter approaches to tax efficient trading so you should contact a Traders Accounting tax professional to help you determine which business entity is right for you.

Trader Tax Deductions

As it’s not at all uncommon to accumulate $15,000 to $25,000 in deductible expenses annually. Here’s a look at some of the major deductible expenses:

Home Office Deduction: One of the most tantalizing features of working from home is the home office deduction, which is based on the percentage of your home that you use exclusively for your trading business.

If you own your home, your indirect expenses include real estate taxes, mortgage interest, home insurance, utility bills, repairs and maintenance, condominium association dues and the like. Depreciation is calculated on the purchase price of the house (but not the land) at the same percentage your home is used exclusively for trading. If you rent, your rent payment may be your major indirect expense.

Margin Interest: All margin interest is fully deductible to traders using mark-to-market.

Legal and Professional Fees: The fees you pay your accountant, lawyer, investment advisor and other business consultants are deductible in the year in which they are paid. If you have an entity that is on an accrual method (or hybrid accrual/mark-to-market), you can deduct the expense when it occurred. Business books and related materials, dues in professional organizations, subscriptions to investment newsletters and professional journals, and business licensing fees also are deductible.

Travel and Entertainment: If you travel for business, it’s fully deductible: airfare, lodging, rental car, taxis, meals, phone bills and tips. But be sure to document everything with receipts. If you entertain a client and pick up the tab, you may deduct 50% of the bill as long as business was discussed immediately before, during or after the event.

New Equipment: You may write off the purchase of equipment in one of two ways: by taking the full deduction in the year of purchase, or by “capitalizing” (amortizing) the cost over several years. A Traders Accounting tax professional can help you determine which method is best for you.

Business Expenses: The many and sundry costs of doing business, from advertising to thank-you gifts, stamps and postage to ink cartridges and paper clips are all deductible.

Services: The cost of your data feed, Internet service provider for your Web site, high-speed Internet, second business telephone line and cable TV service may be fully deducted if used strictly for business purposes.

Education Expenses: You may deduct the cost of education, including seminars, class tuition, books and other expenses, as long as the purpose of the class is to maintain or improve skills related to your current work.

This is just a partial list of your deductible expenses as a trader. Contact a Traders Accounting tax professional today. We can help you make the most of the business deductions available to you.

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The Power of Mark to Market Accounting

How to Meet the Mark-to-Market Deadline (And What to Do If You Missed It)

After securing your trader tax status, the most important tax move a trader can make is to elect the mark-to-market accounting method. The mark-to-market method not only carries with it the considerable tax advantages described below, it also exempts you from the confusing and tedious wash sale rule.

Unfortunately, every tax year, many unsuspecting traders are surprised to find that they are unable to enjoy these tax advantages, and must instead file under the default cash method, because they did not elect the mark-to-market method in time.

Here’s a look at when and how to elect mark-to-market, and a brief overview of the benefits of doing so. But beware: mark-to-market may not be the best move for you. Consult with a Traders Accounting professional before making this important decision.

Deadlines and Procedures

The IRS may be somewhat vague about what constitutes trader tax status, but it is crystal clear when it comes to the deadline to elect mark-to-market: Individuals must make the election by April 15 of the current tax year - that is, to use MTM for your 2004 return, you would have had to elect mark-to-market by April 15, 2004. Calendar-year corporations must elect by March 15.

The lone exception is for what the IRS considers a new entity, such as a general or limited partnership, C corporation or limited liability company. As a new entity, you have 75 days to note your mark-to-market election internally in records or meeting minutes. You would then be entitled to use MTM for all trading activity from that point forward.

For individual traders, mark-to-market election is a two-step process. First, a statement of intent to use MTM must be filed by the April 15 election deadline. Second, a completed IRS Form 3115 (Application for Change in Accounting Methods) must be filed with your tax return for the change year.

You can file for an extension of up to six months to make your mark-to-market election via the private letter ruling procedure under IRS Section 301.9100-1 (Extensions of Time to Make Elections). The IRS may charge a fee for this. In practice, however, most traders who miss the MTM deadline don’t realize it until the following year, and hence miss the election extension deadline as well.

Why Mark-to-Market Matters

Mark-to-market is the accounting method of choice for most active traders for the following reasons:

· No wash sales: MTM traders are exempt from the wash sale rule; because holdings are tallied at year’s end, there is no need to account for gains or losses that might occur within the 30-day wash sale restrictions. Many traders elect MTM specifically to avoid cumbersome wash sale accounting.

· Loss insurance: Because your income/losses are treated as ordinary and not capital gains/losses, you are not bound by the $3,000 capital loss limitation. This means you can deduct all losses in the year they occur, providing tax relief when you need it most.

· No change to self-employment exemption: Even though MTM income is not considered capital gains, traders who elect MTM remain exempt from self-employment tax, the same as investors and non-MTM traders.

But there are disadvantages to making the mark-to-market election as well:

· No capital loss carryover: Capital losses can only be offset by capital gains. If you are carrying forward a substantial capital loss, beware: by selecting MTM, your gains would be considered ordinary income moving forward, hence only $3,000 per year could be used to offset your capital loss.

· Loss of long-term capital gains: Forex/futures traders who deal mainly with 1256 contracts typically avoid MTM in order to retain the advantageous long-term capital gains tax rate on 60% of their earnings.

· Election is permanent: As an individual trader, once you’ve made the MTM election, you’re stuck with it. However, if you establish a legal entity, you may un-elect MTM if circumstances dictate, or simply dissolve and form another entity without electing MTM.

Mark-to-market can be a trader’s safety net. It can also, in some instances, be the biggest tax mistake you could make. Be sure to consult a Traders Accounting tax professional before making this all-important election.

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Eight Steps to Successful Trader Tax Filing

Each New Year brings to a close a trading tax cycle and officially begins the
preparation for our annual reckoning with the Internal Revenue Service. If your income exceeded your expectations, you can bring that sense of accomplishment to the daunting job of tax planning; if not, we can often help you recoup some of your shortfall through prudent tax strategies.

Advance tax planning is a particularly good idea this year, due to changes to the tax code created by the Working Families Tax Relief Act and the American Jobs Creation Act of 2004.

Because every trader faces unique circumstances, there can be no cookie-cutter, one- size-fits-all tax solution across the board. It is important to consult with a Traders Accounting tax professional before making any decision that could impact your federal income tax and/or trader tax status.

Here are eight important points to consider in filing a successful tax return:

1. Protect Your Trader Tax Status

Nothing can throw a monkey wrench into your tax plan like being denied trader tax status by the Internal Revenue Service. Because trader status is constantly evolving with each tax court decision, it is especially important to position yourself well within the IRS' working parameters before proceeding.

According to the IRS, to qualify as a trader, you must 1) seek to profit from daily market movements in the prices of securities and not from dividends, interest or capital appreciation; 2) your activity must be substantial; and 3) you must carry on the activity with continuity and regularity. Fail any part of that test and you'll be treated as an investor, not a trader, for tax purposes.

What's at stake? Investors are subject to the 2% threshold for deductible investment expenses (and hence cannot write off most of their expenses) and are limited to a $3, 000 capital loss deduction. But as a trader, you can write off 100% of your expenses, and if you elect the mark-to-market (MTM) accounting option, can offset all of your losses against income. But remember if your trader status is denied by an IRS audit you loose your MTM election.

New this year: The Frank Chen case. A curious tax court ruling last summer in the case of Frank Chen cast a dark cloud over the trader tax status of certain filers. In the Chen case, the judge agreed with the IRS in denying Chen's trader tax status based in part on the fact that trading was not Chen's "sole and primary income- producing activity."

If you make more money at another job, or even have another job in addition to your trading, be sure to consult a Traders Accounting tax professional before proceeding with your tax preparations.

2. File a Timely Extension

Because of the complexities of filing a trader tax return, it's often a good idea to file an extension. If you file an Automatic Extension by the tax deadline of April 15, your tax deadline is automatically moved to Aug. 16. If you need additional time to complete your taxes, you can file for a second extension by Aug. 16, which would move your tax deadline to Oct. 15. But this second extension is not automatic; you must provide a reason for needing extra time and receive the form back marked "granted" by the IRS.

Bear in mind that an extension only gives you extra time to file; you must still pay at least 90% of what you owe by the original April 15 deadline, or your Automatic Extension will be ruled invalid and you'll be slapped with late penalties of 5% per month up to five months, as well as interest expense on all tax payments after April 15.

3. Report on the Correct Forms

Many traders mistakenly report all trading income on Schedule D (Capital Gains and Losses). To avoid this common error, if you elected mark-to-market accounting, you should list your trading activity on Form 4797 (Sales of Business Property), and if you traded in futures or forex, you should report these trades on Form 6781 (Gains and Losses from Section 1256 Contracts and Saddles).

4. Don't Depend on IRA Trades for Trader Status

If you are trading in your individual retirement account or 401(k) plan the IRS won't count those trades toward your trader tax status, even if you meet the other trader requirements.

5. Beware Missteps on "Managed Accounts"

If you have "managed accounts" in which you have hired another trader to conduct your trades, the IRS will not count that activity toward your trader tax status, nor allow you to take expenses against it. To successfully claim trader tax status, you must actually be the one "pulling the trigger" on the trades.

6. Prepare Before Proceeding with Mark-to-Market

The rules of mark-to-market election couldn't be clearer: in order to use MTM this year, you must have notified the IRS of your election by the tax deadline last year. You would then begin using MTM this year by enclosing IRS Form 3115 along with your tax return.

But before you make the switch, make sure you separate your investment holdings from your trading stocks and options. Why? Because unless they are clearly separated, you will be required to mark them to market at year's end and report any gain as ordinary income. That could prove disastrous for stocks that have greatly increased in value over time.

The decision to elect mark-to-market is not to be entered into lightly; it can have a profound positive or negative impact on your taxes. Once you elect MTM, there is no going back without IRS approval. Consult a Traders Accounting tax professional to see if mark-to-market is right for you. Again remember that MTM is an accounting method only for traders who trade as a business.

7. Include a Complete Trading Log

Traders who elect mark-to-market are often under the misconception that they need only provide their beginning and ending balance on their tax return and not account for the trades in between. The IRS has requested that every trader send in a schedule showing all of his or her trades for the tax year, whether filing as a trader or investor. The lone exception is for those trading in futures or forex; you need only submit a net figure (use IRS Form 6781).

8. Thank Your Spouse (Again)

Married traders have another good reason to thank their spouse this year: The Working Families Tax Relief Act eliminates the so-called "marriage penalty" by increasing the standard deduction to double the amount given to single taxpayers through 2010.

Trader tax preparation is an often-arduous process that requires a thorough command of current tax law, recent tax court rulings and IRS interpretation. Before making any decisions that could affect your trader tax status or return, we recommend that you consult a trader's tax professional to determine your best course of action.

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Futures: What You Trade Determines
How You’re Taxed

Futures trading covers a vast array of trading instruments, from stock indices and U.S. Treasury bonds to precious metals, energy sources such as oil and gas, and everyday foodstuffs including meats, grains and coffee.

Some futures traders buy and sell futures contracts to establish a current price of a purchase or sale to take place at a later date, thus providing a hedge against adverse price changes. Others speculate by buying or selling based on where they expect the market to go in order to profit from the very movements the hedgers seek to avoid.

When tax time rolls around however, the Internal Revenue Service groups each of your futures trades into one of two categories: securities or commodities. The biggest difference: commodities enjoy a lower tax rate.

While it may seem commonsensical to figure out which class your trades best fit, the number of new hybrid financial products created with the passage of the Commodities Futures Modernization Act of 2000 (CFMA) effectively blurred the distinction between some securities and commodities, at least for tax purposes.

The CFMA expanded the definition of a “broad-based index” (10 or more securities) to include almost all futures and options on stock indices, including “e-minis,” treating them as commodities and favoring them with a tax break. “Narrow-based” indices (nine or fewer securities), by contrast, are considered securities and taxed at the ordinary capital gains rate.

Securities vs. Commodities

Securities futures capital gains/losses are reported either on Schedule D (Capital Gains and Losses) or as ordinary capital gains/losses on IRS Form 4797 Part II (Sales of Business Property) if you elected mark-to-market accounting. Your securities trades are taxed as short-term capital gains at the ordinary income tax rate of up to 35%.

Commodities futures capital gains/losses are reported on Form 6781 (Section 1256 Contracts), which qualifies these for an advantageous tax split: 60% at the long-term rate of 15% and 40% at the ordinary short-term rate of up to 35%, or a combined rate of 23%, for a tax savings of 12%.

Because of this attractive 60/40 split, most commodities traders forego mark-to-market accounting and its favorable “loss insurance” in order to reap the benefits of the lower capital gains rate.

The Exception: Single-Stock Futures

What would IRS regulations be without an exception or two, right? In the case of futures, that exception affects single-stock futures, or SSFs, also referred to as securities futures contracts.

The IRS lumps SSFs in with securities and taxes them on the same basis as their underlying stocks, options or narrow-based indices. As a result, you pay the short-term capital gain rate of 35% on single-stock futures, and not the lower rate the IRS affords to commodities futures.

To make matters more confusing, the IRS doesn’t require your broker to report SSF proceeds on your IRS Form 1099-B, which lists proceeds from stock sales. While your broker or brokers may choose to include this information on your 1099-B, if they don’t, it can be a headache to break them out, especially under the crunch of tax deadline.

Futures traders have been given a considerable tax break in recent years that reflects the changing and expanding nature of the various financial products available. But if you don’t report correctly, you may join the majority of traders who routinely overpay to the IRS. Before filing this year, contact a Traders Accounting tax professional. We can help you sort out your activity and file a complete return that fully complies with IRS guidelines while achieving maximum tax advantages.

Take it from experienced traders: don’t go it alone when it comes to filing with the IRS. One false move can cost you plenty, possibly even your trader tax status. We strongly recommend you seek the assistance of a trader tax professional at Traders Accounting this tax season.

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Traders Will Feel Effects of Non-Trader Tax Changes

We typically use this space to discuss the many aspects of taxation specific to those who file as traders. But just because you are awarded trader status for tax purposes doesn’t mean you’ll remain untouched by new tax laws and changes to code that could affect all taxpaying Americans.

Here are three recent changes that could affect how you file your 2005 federal income tax return:

New Treatment of Retirement Plans

Last April, when President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (most of which goes into effect on Oct. 17), it marked the most significant change to bankruptcy law in 25 years. The move came as the long-awaited response to what has been termed an epidemic in bankruptcy filings that have doubled in the last decade to 1.6 million last year alone.

The new Bankruptcy Act in general makes it more difficult for debtors to escape (or “discharge”) their debts; instead, many will be required to work out repayment plans and attend credit-counseling courses. Analysts say the new law marks an ideological shift in bankruptcy law from debtor-friendly to creditor-friendly.

Previously, bankruptcy filers were generally allowed to keep all the money in their Individual Retirement Accounts. But the new provisions limit at $1 million total the exemption allowed from your combined contributory (non-rollover) traditional, Roth, SEP and SIMPLE IRAs.

The act also excludes from a bankruptcy estate all ERISA-covered employee plans, including government sponsored employee benefit plans, deferred compensation plans, 403(b) tax-sheltered annuities and health insurance plans regulated by state law.

Here are the new rules regarding rollovers: If you roll over a balance from a retirement account with an unlimited exemption (i.e., an employee benefit plan), that amount retains its unlimited exemption, as do the assets and future earnings of those assets.

Caution is advised when rolling over accounts: To avoid loss of unlimited exemption status, keep your rollover accounts separate from your contributory (or non-rollover) IRA accounts, where the exemption is capped.

If you hold a Coverdell education savings account, funds deposited into it between 720 and 365 days before the date you (perish the thought) file bankruptcy are exempt only up to $5,000; amounts deposited thereafter are not exempt for bankruptcy purposes.

Charitable Donation of Vehicles

The IRS recently clarified the process by which you may claim a deduction for the charitable donation of a qualified vehicle such as a car, boat or airplane. These guidelines are generally effective as of January 1, 2005.

Under the new guidelines, the deduction amount is usually limited to the actual sales price that the charity realized for the vehicle. The IRS also will want to see a receipt from the charity that reflects this amount.

But as with most IRS guidelines, there are a few exceptions. If the charity makes “material improvements” to the vehicle, such as major repairs, or if it chooses to use the vehicle for “significant intervening use” such as deliveries instead of selling it, you may then deduct the fair market value from your taxes. You may also claim a fair market deduction if the charity chooses to donate or sell the vehicle at a substantially reduced price, for instance to a family in need.

When calculating fair market price, dealers generally use one of three methods: trade-in value, dealer retail price and private-party sale price. Under the new IRS guidelines, if you qualify to deduct fair market value, it may be no higher than the private-party price of the vehicle.

The Subtleties of Inherited IRAs

In a recent IRS ruling, one family learned the hard way about the subtleties of the term “rollover” when the IRA holder dies.

A father opened an IRA with right of survivorship for his wife and named an irrevocable trust for his children as beneficiary. His wife preceded him in death. Upon the account holder’s death, his son and executor requested that the investment firm holding the IRA roll it over into the trust, believing that action would qualify as a rollover and not trigger a taxable event.

He was wrong. When the father died, his IRA technically became an “inherited IRA,” which under Internal Revenue Code does not qualify for “rollover,” which by IRS definition is a nontaxable event.

The investment company of course complied with the request. After all, people misuse the term “rollover” every day to mean the simple transfer of funds from one account to another. What they should have done however was to inform the executor that such an action would trigger immediate taxation on the full amount of the IRA.

A happier scenario would have resulted if the executor had been advised to set up lifetime payouts to the trust beneficiaries, which would have prevented the IRS from lowering the tax boom on the full amount.

Don’t let the fine print of the tax code catch you by surprise. Our experienced tax professionals at Traders Accounting can guide you through hassle-free tax filing, estate planning and business entity formation so that more money goes to you and your heirs instead of the tax man.

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Retirement Options for Traders

Do You Know Where Your Retirement Funds Are?

Retirement plans have been much in the news lately, but unfortunately, it’s usually because of disappearing funds. Over the past few years, people have been watched in horror as their pension funds evaporated. The lucky ones are those with half their nest egg still intact.

Yes, the economy had a lot to do with the problem, but so does the retirement system itself. Retirement custodians, who profess to have an interest in where your money is going, manage retirement plans. But do they really care? The definition of safe investments is fluid, and what’s safe to you may not be safe to your custodian. The bottom line? Why let someone else manage your retirement money?A retirement plan of some sort is almost a necessity today. Gone is the time when a person worked for one company their entire life, and then received a pension that kept them living the lifestyle they’d become accustomed to. Nowadays, frequent job changes mean that you may have many retirement accounts floating around, and the rules for what you can and cannot do with these accounts are numerous and cumbersome.

We’ll tell you what we feel is an appropriate solution to this mess, but even with our recommendation, you must consult a tax professional before implementing our techniques. One wrong move and your retirement funds could show up in taxable income this year—and possibly with related penalties. This you don’t want to see!

Pensions Defined

What is a pension, exactly? A pension is a plan in which the employer provides benefits to employees after they retire. The pension expense is deductible to the employer, and the earnings accumulate tax-deferred_for employees. Employees aren’t responsible for taxes on these funds until the money is distributed sometime in the future. Employees can postpone distribution until the age of 55 at the earliest, or until 70 ½ at the latest. Most people are in a much lower tax bracket in their later years, so there’s a tax savings inherent in how the plan is set up.

If you withdraw funds early, you’ll be subject to an additional 10% tax, unless you fall into one of the IRS’ many exception categories, which include a withdrawal because you’re totally and permanently disabled, or due to the death of the plan participant, or to pay for deductible medical expenses, whether you itemize your deductions or not.

Recent changes in the tax law allow you to convert your current retirement accounts into a qualified pension plan offered by a business. Traders? If you’ve formed an entity, you are the business. Once you roll all your separate plans over into one account, you can act as the trustee of your own retirement money.

If you rollover retirement funds into another qualified plan, you can’t deduct the rollover as an additional contribution. If rollover payments are made directly to you, the issuing entity must withhold 20% for income taxes. After distribution, you have 60 days in which to open another qualified plan, or 100% of the distribution is taxable as income. To avoid the 20% withholding, select a direct rollover, where the funds will be directly deposited from your current plan to your new one.

Special rules apply to issues such as partial rollovers, or rolling over more than your fund holds. Please refer to IRS Publication 575, Pension and Annuity Income for details on those and other important retirement tax topics.

Again, please consult with a tax professional, or speak with a financial consultant to ensure that you don’t make mistakes. But remember: who’s in a better position to manage your money? Nameless people at a large international brokerage firm with too many clients, or hardworking you?

We Recommend…

For the best tax savings and most protection of your hard-earned money, we recommend initiating a corporate pension plan. As mentioned, pension expenses are fully deductible. Your business can contribute (and deduct) up to $40,000 per employee each year, or 25% of the employee’s salary, whichever is less . In turn, you, as the corporate owner, become the account trustee and make all investment and administrative decisions.

As trustee, you may invest in securities, real estate, or in any other investment as long as it’s prudent in nature. Although you’re the trustee , we recommend that you diversify your investments. No one wants aretirement fund full of Arthur Andersen or Enronesque securities.

Since you can roll over your other retirement accounts into your new corporate account, you’ll be managing all of your money. You won’t be taxed until the funds are withdrawn, so you accumulate tax-deferred income. Watch your money grow under your own sound investment decisions. And as the plan owner, you may borrow up to $50,000 from it—an excellent way to purchase a home. As the nightly news reminds us, retirement accounts are also protected from lawsuits. The money is safely tucked away for your future.

Let your excess trading income work to fund not only your retirement, but also the retirements of your employees. Since your family members are (or could be) your employees, you’ll want them appropriately protected in the future as well. Your spouse, parents, children, and any other relatives working for you are all entitled to pension plans sponsored by your trading business.

Since you’re using excess trading income to fund these retirement accounts, and since the expense is fully deducted on your business tax return, we highly recommend that you plan for your future in this fashion.

401(k) Plans

One of the most popular vehicles to a secure retirement is a 401(k) Plan. The rules are the same as for the pension plan described above, with one exception: any employee who partakes in your plan has the option of contributing up to $12,000 per year of his or her compensation toward the $40,000 annual limit. If the employee happens to be over 50 years old, that amount increases to $14,000 per year for 2003. Interest accumulates tax free, and the extra money contributed acts as a tax reduction to the contributing employee.

Personal taxes are paid only on the balance of wages earned after the additional contribution is subtracted.

IRAs

Individual retirement accounts are another way to set aside funds for your future. IRAs generally benefit those who are not covered under a pension plan, and the two most common types are a deductible IRA and a Roth IRA.

A deductible IRA is just that, deductible, and is limited to your earned income. You can contribute $3,000 each year ($3,500 if you’re over age 50) and deduct that amount on your tax return. Your spouse may also partake in an IRA and deduct the same amount. The only requirement is that between the two of you, you must report at least $6,000 ($7,000 if you’re both over age 50) in earned income. A stay-at-home mother may contribute to an IRA based on her husband’s earned income though. She doesn’t need to produce an income of her own, provided the parties are filing their taxes as “married filing joint.”

Traditional IRAs

Where the IRS gives a deduction, they usually take something in return. In the case of a traditional IRA, your withdrawals are taxable. Hopefully though, you won’t need to draw on your IRA until your later years, when you’re in a smaller tax bracket. You may begin to withdraw the funds at age 59 ½ without penalty, with a few exceptions. If you withdraw before age 59 ½, or for reasons beyond the allowed exceptions, you’ll pay a 10% penalty on top of your income tax.

First time homebuyers may withdraw up to $10,000 from an IRA without penalty. You may also withdraw funds—without penalty—to pay for higher education tuition, books, fees, supplies, and rooming, whether the higher education is for you, your spouse, or your child, and as long as your deductions don’t exceed your expenses.

Roth IRAs

Roth IRAs allow you to contribute the same amount as regular IRAs each year, but your contributions do not reduce your taxable income. However, many people choose to forfeit the contribution deduction because Roth IRA withdrawals are tax-free. Interest and principal included.

You’ll be assessed a 10% penalty for early withdrawal, but you only need to keep your funds in the account for five years at a time. The Roth is not meant for high-income earners—if you’re a single taxpayer with an AGI over $95,000, or if you’re married with a combined AGI over $150,000, your contributions are phased out. You won’t lose what you already have in a Roth IRA, but you’ll have to make additional contributions through a traditional retirement account.

If you plan to begin an IRA for yourself or your spouse, Traders Accounting recommends the Roth IRA.

We’ve given you the basics to help you begin your retirement planning. For more details, please refer to IRS Publication 590, Individual Retirement Arrangements. And don’t forget: you’re always welcome to leverage Traders Accounting’s knowledge and experience. We specialize in helping people both save and grow their money, regardless of what type of account it’s in.
We’ll help you set up a retirement plan that’s best for you, and help you form an entity to manage the funds and take advantage of extra deductions and benefits. If you already have existing accounts and want to move your funds in the most advantageous way possible, call on the experts at Traders Accounting.
We know retirement plans. We know taxes. And we know traders.

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How to Calculate Capital Gains
for Traders and Investors

Clearing the Air About Capital Gains and Losses

Unless you have an interest in accounting, the intricacies of the tax code with regard to capital gains and losses are most likely to bring on heavy eyelids if not outright dozing.
That’s at least in part due to the fact that there is no one-size-fits-all tax treatment of capital assets; instead, what you pay or deduct will depend on how you realized your gains and losses.

Let’s see if we can clear the air a little bit by explaining what capital gains are and how the IRS goes about taxing them.

Capital Assets

All assets, in tax parlance, fall into one of two categories: capital and non-capital.
Capital assets are those you hold for personal use or investment - your home, furnishings, automobiles, jewelry, coin and stamp collections and so forth. Non-capital assets are things such as sales to customers, accounts receivable, hedging transactions, business supplies and property used for business.

Come tax time, capital assets are subject to capital gains and loss rules. Sales of non- capital assets are taxed as ordinary income and thus are not included in this discussion.

Capital Gain/Loss Sales

Just because an asset is considered capital doesn’t mean you can deduct a loss if you sell it. In fact, losses on personal capital assets (your home, your car, etc.) cannot be deducted. Conversely, gains from the sale of personal capital assets may be taxable.

Once sold, a capital asset either makes money (gain) or loses it (loss). If you held the asset for a year or less, it is considered a short-term gain or loss; if you held it for longer, it is considered a long-term gain or loss. If the capital asset is personal property, the holding period begins the day you acquired it; if it’s a security, it begins the day after you acquired it

Capital Gain/Loss Scenarios

In addition to your straight trading gains, you face three possible gain/loss scenarios:
short-term gains and losses; long-term gains and losses; and both short- and long-term gains and losses. Here’s how you are taxed in each case:

·Short-Term Gains and Losses: Combine your short-term gains and losses to produce a net short-term total. If it’s a gain, it is taxed as ordinary income. If it’s a loss, you may deduct it up to $3,000 on your taxes. If your loss exceeds $3,000, you may carry it over to the following year where it remains a short-term loss.

·Long-Term Gains and Losses: Combine your long-term gains and losses to produce a net long- term total. If it’s a gain, it is taxed at the maximum rate of 15%. If it’s a loss, it is deductible up to the $3,000 cap and you may carry additional loss over to the following year where it remains a long-term loss.

·Short- and Long-Term Gains and Losses: If you have both short- and long-term gains and losses, first combine the short-term gains/losses to produce a net short-term total, then the long-term gains/losses to produce a net long-term total. Next, combine the two net totals. If that’s a gain, each section is taxed at its applicable short-term or long-term rate. If it’s a loss, it is deductible up to the $3,000 cap. If your loss exceeds the $3, 000 cap, deduct your short-term loss first and carryover the long-term portion.

Mixed Short- and Long-Term Gains and Losses

It is possible to end the year with a mix of short- and long-term gains and losses. Here’s how to report the four possible scenarios:

·If your short-term gain exceeds your long-term loss: Take a short-term gain and treat it as ordinary income.

·If your short-term loss exceeds your long-term gain: Take a short-term loss to $3,000 and carry over the balance.

·If your long-term gain exceeds your short-term loss: Take a long-term loss to $3,000 and carry over the balance. The net gain will be taxed at long-term rates.

·If your long-term loss exceeds your short-term gain: Take a long-term loss to $3,000 and carry over the balance.

The Basics of Basis

Your gain or loss in a capital asset is determined by what is called your adjusted basis.
Basis is the price you paid for the asset; adjusted basis is your basis plus additions such as selling expenses to transfer ownership or home improvements, minus deductions for depreciation or casualty loss.

What does this mean for securities trading? If you broker charges you to conduct trades, you may subtract his or her fees from your gain. But sure to read carefully the Form 1099 your receive from your broker at year’s end. Some brokerage firms record gross gains and losses, meaning they haven’t subtracted their expenses, while others record net gains and losses from which their fees have already been subtracted. Always use net gains and losses to calculate your taxes.

Confused about capital gains and losses? Contact a Traders Accounting tax professional today. Unlike most accounting firms, we know trading and the unique tax advantages that only apply to our industry. We can help you minimize your tax liability, simplify your bookkeeping and protect your trader tax status, now and into the future.

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Travel Expenses: Hit the Road to Tax Deductions

Self-employed traders are always pleased to discover that, with a little planning, you can mix business with pleasure and deduct most of your travel expenses on your income tax return.

That's right: If the purpose of your trip is business related, what you do in addition to attending a seminar or meeting with clients or associates can be written off if you follow the rules laid down by the Internal Revenue Service.

First and foremost, take care to establish business intent; you can't just hand out your business cards at Disney World and call it a business trip. The IRS wants to see a legitimate business reason for your trip. Provide that and you open the door to write off the fun side of your journey as well.

One way to turn a vacation into a working, deductible business trip is to schedule meetings with colleagues, potential clients or employers at your destination before you leave. That shows business intent, even if your intent is to make new contacts, scout new opportunities or submit your resume for a future job opportunity. But be sure to schedule those meetings and document those appointments with detailed journal entries before you travel or the IRS may disallow the entire trip.

What constitutes a business trip? For tax purposes, you must stay overnight; if you commute a long distance to a meeting but end up back in your own bed at nightfall, you are not allowed to deduct the expenses you incurred on the road. But if you stayed overnight for legitimate reasons such as fatigue or to avoid rush hour snarls, you qualify for travel deductions.

Your expenses to stay over weekends, holidays and non-working days are deductible as long as you sandwich them between days when you actually conducted business - in the IRS view, that means pursuing something related to your business for at least four hours. However, your travel days are fully deductible free and clear; you don't need to conduct business either coming or going to claim them.

So what constitutes business travel expenses? The IRS is fairly generous in this regard. In addition to your hotel room, you can fully deduct your rental car or transportation costs between the airport, your hotel and business activities, and related transportation expenses (gas, parking, etc.)

When you sit down to meals on the road, your expenses for food, drinks, taxes and tips are only 50% deductible. The same holds true for entertainment expenses such as nightclub cover charges, room rental for dinner parties and parking at a sports stadium.

But the costly incidentals of life on the road - tips, telephone, fax and Internet fees, dry cleaning and laundry costs and so forth - are all fully deductible, as long as you keep receipts or notes to document them.

The easiest way to defend your business expenses is to keep a detailed travel journal. At the top of each page, write the date. As you go through your day, note the amount you spent, the time of day and how you spent it; for instance, your first entry might be "$15 breakfast." You only need to keep receipts for meal and travel expenses over $75, with the exception of lodging, which you'll need in any event.

Because the IRS is looking for collateral to support your business intent, it's a good idea to collect business-related fliers, handouts, programs and receipts along the way. If you applied for a job, hold onto the correspondence with your would-be new employer, your spiffy updated resume and any other evidence that you made, and kept, the interview appointment.

Treat your next business trip as a legal case in which you accumulate evidence of your business intent and you'll be able to have your fun and keep your travel deductions too.

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Even “Worthless” Stock Has Value at Tax Time

During the past few years, many traders have suddenly found themselves holding positions in companies that might as well be on life support: no pulse, zero vital signs and little hope of recovery.

Once a stock qualifies as a “worthless security” in the rather hazy definition of the Internal Revenue Service, at least you can claim a consolation prize of sorts in the form of a deduction for your capital loss.

That’s right: you may deduct the entire cost of the stock as a capital loss on Schedule D (Capital Gains and Losses) of your Form 1040 in the year in which the holding gave up the ghost. The loss offsets capital gains, and any excess can be used to reduce ordinary income (wages, dividends, interest, pensions, etc.) up to the $3,000 cap. Additional loss may be carried over to future tax years as well.

But rest assured, the IRS is going to want proof that the dearly departed company was actually DOA and not just catching a quick nap.

The Art of the Deduction

In the best of all worlds, when a company formally liquidates, you receive a Form 1099-DIV at year’s end showing the liquidating distribution to all shareholders. Using the original cost basis in the shares, you then can easily calculate your loss. You report this amount as sales proceeds on your Schedule D. The distribution date would be the date of sale.

More likely, however, a plummeting share price will be the lone indication that your investment has tanked. Once you determine that your stock is indeed worthless, you may claim it as disposed of on the last day of the taxable year in which it became a lost cause.

You will claim it as either a short- or long-term loss depending on whether you held the security for more than a year; it could be a long-term loss because your sale date is automatically the last day of the current tax year and you may have purchased it early in the previous year.

What Makes a Stock Worthless?

When does a stock become utterly worthless? The IRS holds that anything short of a flat-line still retains some value. Just because the share price of your once-promising equity is down to pennies won’t cut it, nor will the fact that the company is in bankruptcy, is no longer listed on any exchange, or even closed its doors. In short, it’s got to be a totally lost cause, pure and simple.

The IRS recognizes that it can sometimes be difficult to determine the exact moment that a stock crossed the line from loser to worthless. Therefore, in these cases, it has extended its normal statute of limitations for amending returns from three years to seven years from the due date of the original tax return.

Naturally, tax court rulings have shed some much-needed light on exactly what constitutes worthlessness. For instance, you’re on pretty safe ground if the company has more liabilities than assets and insufficient capital to continue operations, or already has gone out of business and/or liquidated.

In it’s ruling in the recent tax court case of Peter Geddis v. Commissioner, the court reaffirmed that it is incumbent upon the taxpayer to defend their worthless stock deduction. The court found that Geddis failed in several ways to show that the company for which he claimed a $192,000 long-term capital loss was worthless. In fact, Geddis failed to offer proof that he was a shareholder or that the company had hit the skids.

In cases of a line call, be prepared to document your worthless securities claim with financial statements and analysis to prove that said stocks were useless for anything except building a bonfire.

Not Worthless? Sell It!

Claiming a sizable worthless deduction has the potential to flag the IRS, which could sap your time and possibly your money. A far simpler solution to disposing of worthless stock is to sell it, even for pennies. That way, you have a confirmed sale to establish value and a closed transaction showing a loss the IRS will accept without question, no messy financial defense or analysis necessary.

Who wants worthless stock? Some brokerage houses actually buy it back. If yours doesn’t, you can still establish your capital loss by selling to a friend or qualifying relative, including in-laws or distant relatives; anyone other than your spouse, siblings, ancestors or linear descendants will work.

Simply obtain the actual stock certificates from your broker, document the transaction with a check and bill of sale, sign over the certificates to the purchaser and contact a stock transfer agent to have the shares reissued in the purchaser’s name.

Traders Accounting can help you identify little-known tax deductions that other accounting firms may miss. As traders and accountants, we know the many intricacies involved with trader tax status. Contact a Traders Accounting tax professional today to see the many ways we can help save you tax dollars tomorrow.

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Medical Reimbursement Plans: Big Savings for Small C Corporations

One of the things that corporate employees love most about the mother ship is the medical coverage. In fact, sometimes the only thing that's even remotely lovable about working for a large corporation is the peace of mind that comes from knowing that your family's medical expenses will be covered.

But just because you work for yourself doesn't mean you can't tap into the same healthcare savings that the large corporations enjoy. If you trade under a C Corporation business entity, you can have your independence and still enjoy major corporate healthcare savings by establishing a medical reimbursement plan , or MRP . If you trade as a sole proprietor, partnership or S Corporation, you cannot establish an MRP.

With a medical reimbursement plan , your one-person C Corporation can deduct 100% of your medical insurance premiums, out-of-pocket costs, deductibles and even uninsured health and accident expenses as a business expense. The same holds true for spouses and family, provided the spouse qualifies as an employee.

One major advantage of an MRP is that you pay for it with pre-tax dollars. With many plans, at least some healthcare expenses (such as co-pays and non-covered procedures) are paid for with after-tax dollars; you earn money, pay taxes on that money, then pay for health care after that.

With an MRP , you as a corporation can purchase a group medical insurance plan and establish a reimbursement plan that pays for everything else (deductibles, co-payments and even uninsured "health-related expenses"). Because this is accomplished with pre-tax dollars, the reimbursements are not taxable income for you or your fellow employees (a good thing), but are fully deductible by the corporation (another good thing!).

A note to calorie watchers: The Internal Revenue Service recently ruled (Rev. Rul. 2002-19) that the cost of a weight-loss program prescribed to treat obesity is a deductible medical expense. Although the status of some expenses associated with fighting the battle of the bulge, such as health club memberships or spa visits, remains unclear, costs directly associated with weight loss programs may now be paid with pre-tax dollars.

Naturally, there are conditions to be met to use an MRP effectively. For example, in order to cover your spouse, you must be married and your spouse must qualify as an employee in the view of the Internal Revenue Service. If you have employees other than your spouse, you must also offer the medical reimbursement plan to them as well, but you may limit their participation based on certain criteria, such as length of service or fulltime employment.

For example, say you have seasonal help: If you limit the MRP to fulltime, year-round employees only, you would not have to offer the plan to your part-timers.

An MRP offers unlimited flexibility; you control the eligibility requirements, qualifying expenses and reimbursement maximums, if any. But all terms and conditions of your corporate MRP must be written to be valid.

The tax professionals at Traders Accounting can help you choose the business entity that is right for your health insurance needs and advise you on tax-savvy ways to make your health care expenditures work for you. If you've already established a C Corporation, contact us today or click here - we have the forms and expertise necessary to help you set up a medical reimbursement plan .

Change Makes Employment Tax Filing Easier

Good news for traders with employees: the IRS will soon allow some small businesses to file their employment tax information annually rather than quarterly.

Employers who estimate their annual employment tax liability at $1,000 or less will soon be eligible to file the new Form 944 (Employer's Annual Federal Tax Return). New businesses can apply for annual filing when they apply for their employer identification number (EIN) and the IRS will tell them if they qualify.

The IRS will begin notifying businesses that qualify by Feb. 1. If you think you do but have not heard from the IRS by Feb. 15, please contact the IRS at 1-800-829-0115.

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Who Says You Can't Trade Your IRA on Margin?

Conventional wisdom has convinced many traders that they can't trade their individual retirement account on margin or sell stock short. Fortunately, you're about to join the exclusive ranks of traders who refuse to be governed by such poppycock as conventional wisdom.

Brokerage houses that would rather not allow you to leverage your IRA account or pursue downside earnings have perpetuated the myth that IRAs are somehow off-limits for traders. Nothing could be further from the truth; in fact, the IRS is cool with the idea of margin trading and short selling your IRA, provided you stay within its tax rules.

The Economic Growth and Tax Relief Reconciliation Act of 2001 loosened considerably the rules regarding IRAs. In addition to margin trading and short sales, you can also invest your IRA in a wide variety of non-traditional investments, including real estate, deeds of trust, certain business entities and coins, as we will see shortly.

But exceptions do apply. A Traders Accounting professional can advise you on the most tax-effective ways to get your IRA out of the slow lane.

IRA Margin Trading

The IRS has specific guidelines for trading your IRA on margin called the debt financed income rules that essentially ensure the government gets a cut of the profit. Still, by IRS standards the split is a generous one: you only pay tax at the corporate tax rate on the profits you make on the borrowed money alone.

Here's how it works: Say you use your $80,000 IRA to purchase a position for $100,000. When your IRA exits the position with a profit of $50,000, 20% of your profit, or $10,000, would be subject to tax because you borrowed 20% of the IRA amount ($20,000) to make the margin trade.

IRA Short Sales

Hard though it may be to believe, the IRS doesn't view borrowing stock against your IRA and selling it within your margin account as incurring debt (IRC Revised Rules 95-8). That means you get to keep every penny you earn on a short sale, tax-free within your IRA, without facing the debt financed income rules.

Here's a likely scenario: You think XYZ stock is overpriced at $100 a share, so you instruct your broker to sell short $100,000 worth for your IRA account; essentially your IRA borrows 1,000 shares of stock from your broker and sells those shares. When your prediction comes true and ABC stock drops to $80 a share, you buy your 1,000 shares back for $80,000, turn them over to your broker to close out your position, and walk away with a $20,000 profit.

Granted, you will be liable for taxes when you ultimately take distributions from your IRA, unless you used a Roth IRA. The upside is, you could increase your IRA investing account by 40% or more in the process. Trade within a Roth IRA and you could well take your distributions tax-free.

Non-Traditional Investments

Although the vast majority of America 's IRAs are invested in conventional assets such as stocks and mutual funds, the IRS allows other non-traditional investments as well, including:

By contrast, the IRS disallows IRA investing in such things as artwork, rugs, antiques, metals and gems (with some exceptions), stamps, coins, alcoholic beverages and life insurance.

Key to tapping into these opportunities is to locate an independent self-directed IRA custodian. Unlike many brokerage firms that claim to offer this service, a true self-directed IRA custodian does not sell investment products on which it earns a commission. These offer the widest range of IRA investment options.

Once you fill out the new account paperwork and authorization forms, your IRA custodian will open your account by either transferring money from an existing IRA into a similar IRA or rolling over funds from an employer's plan into the new IRA. Transfers are tax-free and not reported; rollovers are tax-free as long as the entire amount is deposited into the new IRA within 60 days.

To authorize your custodian to make purchases on behalf of your IRA, simply fill out an Investment Authorization form. Although procedures vary, you will typically be asked to complete the purchase by check or wire from your account, and you may have to provide a deed to ensure that vesting is properly handled.

What's the best way to set your IRA account into investing mode? Simple - contact your trading accountant professionals at Traders Accounting. Why leave your IRA money stuck in the slow lane? At Traders Accounting, we can help you turn your sleepy retirement account into a vigorous, tax-advantaged investment.

Mark -to- Mark et Makes a Magical Difference for Most Traders

By Fred Meissner, J.D., LL.M Traders Accounting

Whenever we consider the benefits of trader tax status, the one item that tops the list is the ability to elect a special accounting method known as mark-to-market, or MTM for short. While mark-to-market won't automatically turn your losing positions into winners, it can have an almost magical effect on your after-tax earnings and day-to-day record keeping.

Sound too good to be true? Actually, for most traders, MTM is indeed the magic bullet that enables them to fully deduct their business-related expenses, avoid the time-consuming wash sale rule and remain exempt from self-employment tax.

But there is a catch or two to this otherwise generous gesture from the Internal Revenue Service that could cost you dearly. We'll soon see why it's a good idea to contact a Traders Accounting tax professional before you make this one-time, irrevocable election.

Let's take a closer look at the all-important mark-to-market accounting method election and the trapdoors you need to avoid to make it work for you.

The Mark -to- Mark et Method

Since 1997, mark-to-market accounting has enabled traders to change the tax status of their earnings from capital gains/losses to ordinary income/losses. This occurs on the last day of the year, at which time you tally all of your open holdings as if you were selling them at the market price that day; in other words, they are "marked to market." On January 1st, you re-tally your holdings as if you were repurchasing them at the current price. The basis of each holding is then adjusted to reflect these hypothetical gains and losses for tax purposes.

Advantages of Mark -to- Mark et

The advantages of mark-to-market accounting include:

Total household income: $140,000
Trading loss: <$40,000>
Trading expenses: $24,230

Janet Trader's tax savings: $19,269
Johnny Investor's tax savings: $984
Benefit of trader tax status & MTM: $18,285

Disadvantages of Mark -to- Mark et

There are three potential disadvantages to electing mark-to-market:

How to Elect Mark -to- Mark et

To elect mark-to-market as your accounting method, you must enclose a statement of intent with your tax return or extension request and file by the appropriate tax deadline (March 15 or April 15) the year prior to beginning MTM accounting. For example, to use MTM for your 2005 return, you would have had to elect mark-to-market by April 15, 2005. The one exception: if you're filing as a new business entity (i.e., general or limited partnership, limited liability company or C Corporation), you have 75 days from opening to note your accounting preference in your meeting minutes.

Your first year using MTM, you will fill out IRS Form 3115 (Application for Change in Accounting Methods) and submit it with your tax return. This form contains an adjustment, Section 481(a), which captures duplications and omissions resulting from the change in accounting methods. If the adjustment is $25,000 or less, you may deduct the full amount on your return; if it exceeds $25,000, you may deduct 25% each year for the next four years.

Exempt Your Investments Before You Elect MTM

Before you elect mark-to-market, be sure to separate your investment holdings from your trading stocks and options. Why? Because unless they are clearly separated, you will be required to mark them to market at year's end and report any gain as ordinary income. That could prove disastrous for stocks that have greatly increased in value over the years.

The IRS lets you exempt your personal investments from your trading business, but only if you identify those investments up front. Like the MTM election itself, this designation is irrevocable; you cannot decide later to fold your investment losers into your trading stock for ordinary losses or cherry-pick your trading winners for capital gains treatment.

Under the IRS guidelines, you must clearly identify your investment stock as such in your records by the close of the day on which you acquired it or when the MTM election was made. There are two ways to do this: you may establish a separate account for your investment stocks (the wisest course of action for MTM traders), or simply note in your records which securities are not part of your trading business.

Be prepared to convince the IRS that your investments have no connection whatsoever to your trading business; otherwise, you'll be required to mark them to market at year's end and report any gains as ordinary income.

What If You Miss the Election Deadline?

Did you miss the mark-to-market election deadline? You can file for an extension of up to six months to make your mark-to-market election via the private letter ruling procedure under IRS Section 301.9100-1 (Extensions of Time to Make Elections). The IRS may charge a fee for this. In practice, however, most traders who miss the MTM deadline don't realize it until the following year, and hence miss the election extension deadline as well.

The tricky business of meeting the MTM election deadline is one reason we at Traders Accounting encourage individuals to trade under the umbrella of a business entity. One of the best ways in general to secure and protect your trader tax status is to trade as a business entity, but it comes in particularly handy where the mark-to-market deadline is concerned. The IRS allows newly formed business entities (including general and limited partnerships, LLCs and C Corporations) 75 days from formation to note their accounting preference in their meeting minutes.

Down the road, should the MTM election prove undesirable (say you shift to trading predominately forex/futures, for example), you may simply dissolve the business entity and form a new one, thereby avoiding the one-time-only election rule.

Get Advice Before You Elect MTM

Is the mark-to-market method right for you? Because every trader faces different circumstances, there is no cookie-cutter approach when it comes to this all-important decision. For some, MTM is the obvious solution to the time-consuming task of tracking wash sales. For others, the ability to fully deduct their losses in the year they occur can make a big difference starting out.

If you find yourself carrying forward a capital loss or have other questions relating to mark-to-market accounting, be sure to consult a Traders Accounting tax professional about your situation before you decide.

 


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Traders Accounting provides tax consulting, entity formation, tax preparation and 401(k) services that help you efficiently establish and maintain your trading business.

They teach you the IRS rules that allow you, as a trader, to deduct the widest range of business expenses and fringe benefits available to business owners.

Their goal is to help you lower your taxes, save you time, and maximize the benefits of your trading business.