Tag Archives: planning

Green’s 2020 Trader Tax Guide

June 18, 2020 | By: jparasole

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Purchase guide

Our paperback and PDF versions are 129 pages, 8 x 11, single-spaced, and easy to read. You get access to the online PDF immediately after purchase. The shipping of the paperback takes about five days, and perhaps a few days longer to the west coast.

Use Green’s 2020 Trader Tax Guide to receive every trader tax break you’re entitled to on your 2019 tax returns. Our 2020 guide covers the 2017 Tax Cuts and Jobs Act and the 2020 CARES Act’s impact on investors, traders, and investment managers. Learn various smart moves to make in 2020. Whether you self-prepare your tax returns or engage a CPA firm, this guide can help you through the process of optimizing your tax savings. Even though it may be too late for some tax breaks on 2019 tax returns, you can still use this guide to execute these tax strategies and elections for tax-year 2020.

The 18 chapters cover trader tax status, Section 475 MTM, tax treatment (equities, 1256 contracts, options, ETFs, ETNs, forex, precious metals, cryptocurrencies, etc.), accounting for trading gains and losses, trading business expenses, tips for preparing tax returns, tax planning, entity solutions, retirement plan strategies, IRS and state tax controversy, traders in tax court, proprietary trading, investment management, international tax, Obamacare taxes, short selling, the Tax Cuts and Jobs Act, and the CARES Act. (Version 2 June 18, 2020).

Green’s Trader Tax Guide has been published every year since 1997 and remains the gold standard in trader tax.

Sincerely,
Robert A. Green, CPA
Author, Green’s 2020 Trader Tax Guide

 

 

IRS Increases “Expensing” Amount To $2,500

December 3, 2015 | By: Robert A. Green, CPA

Click to read Green's blog post

Click to read Green’s blog post

In general, a business must capitalize property for purposes of depreciation. For smaller purchases, the IRS allows expensing under its Tangible Property Regulations, since it’s inconvenient to maintain depreciation records on small amounts. The IRS increased the de minimis expensing amount to $2,500 from $500. Although the IRS mentions this rule change is effective for 2016, IRS Notice 2015-82 & News Release IR 2015-133 point out it’s Ok to use for open tax years. That means it’s an excellent year-end tax strategy for 2015.

For example, if a business trader purchases a new workstation in December 2015 for $7,500, try to break down the purchase into separate items with each invoice being under $2,500. For example, purchase the computer separate from the monitors and other equipment. With all items on separate invoices under $2,500, the entire $7,500 can be a 2015 business expense without any capitalization for fixed assets and related depreciation. That leads to faster expensing, tax benefits and less compliance work.

“There is no specific requirement that it must be on separate invoices,” said Darren Neuschwander, CPA. “It can all be on one invoice, but it may draw more IRS attention and require more time to breakout. Separate invoices is good practical guidance to avoid this issue. Under the change, the new $2,500 threshold applies to any such item substantiated by an invoice.”

Learn more in our Dec. 3, 2015 Webinar recording: Year-End Tax Planning For Traders. Scroll to 42:07 to 48:35 in “Trader Tax Status.” It starts with “Great news about…“Expensing.”

 

Year-End Tax Planning For Traders (Recording)

November 5, 2015 | By: Robert A. Green, CPA

Join CPA members Robert A. Green, Darren Neuschwander and Adam Manning for this important Webinar event. Our CPAs are working with clients on 2015 year-end tax planning.

In this Webinar, learn how to:

  • Avoid wash sale losses.
  • Qualify for trader tax status benefits.
  • Accelerate or defer income.
  • Avoid tax hikes on upper-income taxpayers.
  • Take advantage of lower tax rates and brackets.
  • Maximize all types of deductions.
  • Maximize use of entities.
  • Maximize use of health insurance and retirement plans.
  • Avoid underestimated tax penalties.

We invite you to register and attend the live event at no charge and we plan to offer a complimentary recording.

Year-End Planning For Entities: Payroll, Retirement And Health Insurance (Recording)

November 4, 2015 | By: Robert A. Green, CPA

Join CPA members Robert A. Green, Darren Neuschwander and Adam Manning for this important Webinar event.

If you operate an S-Corp trading company or S-Corp or C-Corp management company, you need to execute officers’ compensation (payroll) before year-end if you want employee-benefit plan deductions. You also need to establish some retirement plans before year-end including a Solo 401(k) plan or a defined-benefit plan. The elective deferral portion of a Solo 401(k) must be funded and integrated with year-end payroll. (You can fund the profit sharing plan portion in 2016.) If you don’t act before year-end, you will lose these valuable tax benefits.

In this Webinar, learn how to:

  • Maximize and plan employee-benefit plan deductions including retirement plans and health insurance premiums.
  • Determine the appropriate amount of officers’ compensation.
  • Execute payroll in December when you have visibility on annual trading gains, losses and expenses.
  • Add officers’ health insurance premiums to officer W-2 taxable wages.
  • Select a payroll tax service provider. (We recommend Paychex.)

Examples Worksheet (PDF). (We revised the Defined Benefit Plan column after the Webinar.)

 

Common Tax-Planning Questions

October 30, 2015 | By: Robert A. Green, CPA

Here are the top questions we often ask our clients. Consider your answers and contact us to find out if there are specific tax moves you should make before year-end. Read our year-end tax planning series: Smart Tax Saving Moves For 2015Retirement Plan Strategies for 2015 and Tax Moves for Business Owners in 2015.

  1. Should you sell some losing investment positions to offset capital gains (tax loss selling) before year-end?
  2. Do you have a wash sale loss problem and can you fix all or part of it for 2015?
  3. Have you done whatever you can to use up capital loss carryovers?
  4. Have you maximized long-term capital gains rate benefits?
  5. Should you form a trading business entity to unlock employee-benefit plan deductions including health insurance premiums and a retirement plan?
  6. When is it too late to form an entity in 2015 and consider one instead for Jan. 1, 2016?
  7. How can you maximize employee-benefit plan deductions by year-end?
  8. If you have high income, is a defined benefit plan better than a defined contribution plan?
  9. Will you get good bang for the tax buck on purchasing new equipment before year-end?
  10. Do you qualify for trader tax status (business expense) in 2015 or will you qualify in 2016?
  11. Should you elect Section 475 MTM in your new entity within 75 days of inception?
  12. Is Section 988 ordinary treatment or Section 1256(g) capital gains treatment better for your forex trading through year-end?
  13. Is a Roth IRA conversion a good idea for you before year-end?
  14. Is an NOL carry back or carry forward better or should you soak up the NOL with a Roth IRA conversion in the current year?
  15. What tax brackets are in you in for 2015 and should you defer or accelerate income at year-end?
  16. Do you face an underestimated tax payment penalty and what can you do to avoid it?
  17. Are you avoiding tax hikes on upper-income taxpayers including Obamacare Net Investment Tax as best you can?

 

Tax Moves For Business Owners In 2015

October 28, 2015 | By: Robert A. Green, CPA

A cash method business can often accelerate or defer sales, billing and collection of revenue around year-end. If they sell their business or assets they can either use the installment method to defer capital gains, or elect out of that method to report the entire capital gain in the current tax year.

Businesses can accelerate or defer purchases of fixed assets and expenses around year-end as well. And, they have many options for how to depreciate and amortize fixed and intangible assets, respectively.

Accrual-method businesses can delay providing goods or services to customers until after Jan. 1. There are also special rules allowing accrual method taxpayers to deferring revenue received in advance of shipment of goods or services. Read about other smart moves for operating businesses on The Tax Advisor.

Keep an eye out on “tax extenders”on depreciation discussed in our blog post Smart Tax Savings Moves For 2015. Traders don’t often exceed old rules (which currently apply for 2015) allowing up to $25,000 of purchases for Section 179 (100%) depreciation whereas other types of businesses certainly do. The 50% bonus first-year depreciation deduction also lapsed but businesses can use the half-year conversion to similar effect.

If you expect debt cancelation and expect related debt-cancelation taxable income, it may pay to defer that taxable event to 2016.

Payroll and self-employment taxes
An operating business can use the S-Corp structure to reduce payroll taxes by 50% or more (subject to new guidance pending from the IRS). S-Corps don’t pass through self-employment income (SEI) triggering self-employment (SE) tax as partnerships and sole proprietorships do. Consider the SE tax reduction loophole for management companies and other types of business.

Traders use a S-Corp trading company (or C-Corp or S-Corp management company along with a trading partnership) to unlock employee-benefit plans including retirement and health insurance premium deductions. Sole proprietor traders can’t have these tax breaks. It’s hard to arrange them on trading partnership returns.

Both payroll and Solo 401(k) retirement plans must be executed or established before year-end. A SEP IRA can be established up until the due date of the tax return including extensions, although a Solo 401(k) is a much better plan for traders. Learn more in our blog post Retirement Plan Strategies For 2015.

Retirement Plan Strategies For 2015

| By: Robert A. Green, CPA

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Click to read Green’s post on Forbes

There’s still ample time in 2015 to rearrange the timing of your investments, trading, retirement and business affairs to improve your overall taxes for 2015 and surrounding years.  In this second blog post of our year-end tax planning series I focus on retirement plans.

Retirement plans for traders can be used several ways. You can trade in the retirement plan, build it up with annual tax-deductible contributions, borrow money from it to start a trading business and convert it to a Roth IRA for permanent tax-free build-up. Whatever the use, traders often need help through these important planning opportunities. There are plenty of pitfalls to avoid like early withdrawals subject to ordinary income tax rates and 10% excise tax penalties, and penalties on prohibited transactions.

Tax-advantaged growth
Many Americans invest in the stock market through their 401(k), IRA or other types of traditional retirement plan. Capital gains and losses are absorbed within the traditional retirement plans with zero tax effect on current year tax returns. Only withdrawals (or distributions) generate taxable income at ordinary tax rates. The retirement plan does not benefit from lower long-term capital gains rates. Traditional retirement plans aren’t disenfranchised from deducting capital losses, since a reduction of retirement plan amounts due to losses will eventually reduce taxable distributions accordingly.

Defined contribution plan vs. defined benefit plan
Most private companies switched to defined contribution plans, whereas public-sector unions still use richer defined benefit plans. In a defined contribution plan, the contribution is defined as a percentage of compensation, whereas in a defined benefit plan, the retirement benefit itself is defined.

If you own and operate a small business, consider a Solo 401(k) defined contribution plan. It combines a 100% deductible “elective deferral” contribution ($18,000 for 2015) with a 25% deductible profit-sharing plan contribution on an employer-level plan. There is also a “catch up provision” ($6,000 for 2015) for taxpayers age 50 and over. Together, the maximum tax-deductible contribution is $53,000 per year and $59,000 including the catch up provision (based on 2015 and 2016 IRS limits).

Consistently high-income business owners, including trading businesses with owner/employees close to age 50, should consider a defined-benefit retirement savings plan (DBP) for significantly higher income tax and payroll tax savings vs. a defined-contribution retirement savings plan (DCP) like a Solo 401(k). Read our blog post Defined-benefit plans offer huge tax breaks.

Get started before year-end
Contact your tax advisor in early November as these plans take time to consider, establish and fund. Several large online brokers offer Solo 401(k) plans, otherwise known as Individual 401(k)s. Paychex, our recommended service provider for payroll tax compliance, also offers the Solo 401(k) product and integrates it with payroll tax compliance. The Paychex Solo 401(k) product contains the plan loan feature, whereas I only know of one large broker that also offers a plan loan feature (TD Ameritrade). Direct-access trading is allowed with all these options. (Paychex has a team dedicated to GreenTraderTax clients – brochure.)

Only a few top brokers offer a defined benefit plan product.

Solo 401(k) defined contribution plans and defined benefit plans must be established before year-end, so get started by early December. IRAs can be established and funded after year-end by April 15. A SEP IRA can be established and funded by the due date of the tax return including extensions, so if you miss the Solo 401(k) deadline, that could be a last resort option.

A Solo 401(k) is better for most traders in most situations than a SEP IRA, because it has a 100% deductible elective deferral in addition to profit sharing plan and the SEP IRA only has the profit sharing plan. In a Solo 401(k), it takes a lower amount of wages to maximize the higher contribution amount versus a SEP IRA. Because traders are in control of the compensation amount they can achieve a higher income tax benefit versus a lower payroll tax cost with a Solo 401(k).

Contributions to IRAs
Traditional and Roth IRAs allow a small annual contribution if you have earned income: $5,500 per person if under age 50 and $6,500 if 50 and older (2015 and 2016 limits). If you (and your spouse) are not active in an employer-sponsored retirement plan, or if either of you are active but your modified adjusted gross income (AGI) doesn’t exceed certain income limits, you may contribute to a traditional tax-deductible IRA.

Non-deductible IRA. If you have earned income, you should also consider making a non-deductible IRA contribution, which doesn’t have income limits. The growth is still tax deferred and you are not taxed on the return of the non-deductible contributions in retirement distributions. The general rule applies: If you deduct the contribution, the return of it is taxable, but if you don’t deduct the contribution, the return of it is non-taxable. Income growth within the plan is always taxed unless it’s inside a Roth IRA.

Contributions require SEI or wages
Many traders are interested in making tax-deductible contributions to retirement plans for immediate income tax savings in excess of payroll tax costs and to actively trade those accounts with tax deferral and growth until retirement. But, there is an obstacle: Trading gains and portfolio income are not self-employment income (SEI) or compensation, either of which is required for making contributions to a traditional or Roth retirement plan. (The exception to this is futures traders who are full-fledged dealer/members of options or futures exchanges; their individual futures gains are considered SEI.) You can overcome this obstacle with a trading business entity — S-Corp trading company or C-Corp management company — paying compensation to the owner/trader. This strategy does not work for investment companies, though.

Early withdrawals vs. a qualified plan loan
If you need to withdraw money from a traditional retirement plan before retirement age 59 ½ for IRAs and age 55 for a 401(k), in addition to the distribution being taxable income, you’ll probably owe a 10% excise tax penalty subject to a few limited exceptions (Form 5329). In lieu of an early withdrawal, consider a loan from a qualified plan like a Solo 401(k). IRAs are not qualified plans and loans would be a prohibited transaction blowing up the IRA, making it all taxable income. You can borrow up to the lower of $50,000 or 50% of plan assets, and you must repay the loan with market interest over no longer than five years and a quarterly basis.

Required minimum distributions
Per Thomson Reuters, “Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retired plan) if you have reached age 70½. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70½ in 2015, you can delay the first required distribution to 2016, but if you do, you will have to take a double distribution in 2016 — the amount required for 2015 plus the amount required for 2016. Think twice before delaying 2015 distributions to 2016 — bunching income into 2016 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2016 if you will be in a substantially lower bracket that year.”

Roth retirement plans and conversions
A Roth retirement plan is different from a traditional retirement plan. The Roth plan has permanent tax savings on growth, whereas the traditional retirement plan only has deferral with taxes owed on distributions in retirement. Distributions from a Roth plan are tax-free unless you take an early withdrawal that exceeds your non-deductible contributions to the plan over the years (keep track well).

Consider annual contributions to a Roth IRA. The rules are similar to traditional IRA contributions. Also, consider a Roth IRA conversion before year-end 2015 to maximize use of lower tax brackets, offset business losses and fully utilize itemized deductions.

Here’s an example: Assume a trader left his job at the end of 2014 and incurred trading losses in 2015 with trader tax status and Section 475 MTM ordinary loss treatment as a sole proprietor. Rather than carry back an NOL that could draw IRS attention, or carry forward the NOL to subsequent years when income isn’t projected, this trader rolls over $300,000 from his prior employer 401(k) to a Rollover IRA and enacts a Roth IRA conversion for $300,000 before year-end. He winds up paying some taxes within the 15% ordinary tax-rate bracket. If the trader skipped a Roth conversion, he would lose tax benefits on his itemized deductions including real estate taxes, mortgage interest, charity, and miscellaneous itemized deductions. This trader’s Roth account grows in 2016 and he chooses to skip a recharacterization. (If a recently converted Roth account drops significantly in value in the following year, a taxpayer may reverse the Roth conversion with a “recharacterization” by the due date of the tax return including extensions (Oct. 15).

Also, after recent market corrections in indexes and many individual stocks, consider a Roth conversion at lower amounts to benefit from a potential recovery in markets inside the Roth IRA where that new growth is permanently tax-free. Converting at market bottoms is better than market tops.

DOs and DON’Ts of using IRAs and other plans
Learn the DOs and DON’Ts of using IRAs and other retirement plans in trading activities and alternative investments (read our blog post). Many traders may be triggering IRS excise-tax penalties for prohibited transactions including self-dealing and/or UBIT (unrelated business income tax) by using their IRAs and other retirement funds to finance their trading activities and alternative investments. Spot these problematic schemes early, like the IRA-owned LLC. Avoid “blowing up” your IRA, which means it becomes taxable income; plus there are severe penalties.

When it comes to retirement plans and tax savings, it’s wise to do tax planning well before year-end to maximize your available options. The door closes on many at year-end.

Traders Expo NYC: Trader Tax Law Update

January 22, 2015 | By: Robert A. Green, CPA

David GrandeyJoin me at The Traders Expo New York, February 28–March 2,
to learn the latest strategies for trading stocks, ETFs, commodities, futures & forex, watch pros explain live trades, test drive cutting-edge products, and receive exclusive discounts & prize giveaways! Please see my speaking schedule below and register free now.

Trader Tax Law Update: Current Developments, Obamacare Taxes, Trader Tax Status, Key Tax Elections, Entities, and Retirement Plans
March 1, 8:00 am – 9:00 am EST

This presentation will cover:

  • Current developments including tax reform, tax changes, and court cases.
  • Obamacare taxes: individual health insurance mandate (tax penalties, exemptions, premium tax credits, and claw backs of subsidies) and the net investment income tax on upper-income taxpayers.
  • How to save thousands with trader tax status (business treatment) and discover key trader tax strategies and tax elections. Investors have important elections to make, too.
  • Tips for preparing a trader tax return for 2014 with maximum tax benefits.
  • The key tax treatment differences between securities, Section 1256 contracts (futures, all types of options, ETFs, forex, precious metals, and more).
  • The best types of entities and retirement plans for traders.

There is no recording of this live event. 

6 Items For Your Year-End Tax Shopping List

December 9, 2014 | By: Robert A. Green, CPA

Join Green NFH CPAs and year-end tax planning experts Robert A. Green and Adam Manning in this Webinar.

Getting through your holiday “to-do” list is important for enjoying the holidays. The list may be long, but if you want gifts from Uncle Sam-ta, here are 6 items to add. Just be sure to execute them before year-end.

1. Make portfolio and business transactions for significant tax advantages.
2. Don’t get caught paying taxes on phantom income.
3. You’ve set up your entity, but unless you execute compensation and employer 401(k) plans before year-end, its tax deductions will go down the drain.
4. Don’t miss the boat on 2015; set up your trading business and entity for Jan. 2.
5. Don’t get slapped with an underestimated tax payment penalty.
6. The clock is ticking on RMDs, charitable contributions, gifts and FSAs.

As background material for our Webinar, read our short blog “6 items for your year-end tax shopping list.”

6 Items For Your Year-End Tax Shopping List

| By: Robert A. Green, CPA

Don’t let valuable tax deductions go down the drain. Attend our Dec. 11 webinar (or watch the recording) to discuss this content.

By Robert A. Green

Getting through your holiday “to-do” list — sending cards, gift buying, wrapping presents and baking cookies — is important for enjoying the holidays. The list may be long, but if you want gifts from Uncle Sam-ta, here are 6 items to add to it. Just be sure to execute them before year-end.

1. Make portfolio and business transactions for significant tax advantages.
Consider year-end transactions like selling winning or losing investment portfolio or business positions, invoicing clients and purchasing business items. If you are in the top tax bracket, defer income and accelerate expenses to reduce Obama-era tax hikes on income and net investment taxes (the combined federal tax rate is 44%). If you’re in lower tax brackets, accelerate income and defer expenses to utilize potentially wasted itemized deductions and take advantage of lower marginal tax brackets. A Roth IRA conversion is great for soaking up lower tax rates.  Learn more in our year-end tax planning blog and webinar.

2. Don’t get caught paying taxes on phantom income.  (Ouch! That would hurt.)
If you take a loss on a security toward year-end and buy back a substantially identical position in any of your taxable and/or IRA accounts within 30 days before or after, it’s considered a wash sale loss deferral (and permanently lost with an IRA). Break the chain on wash sales by not buying the position back in 30 days and get credit for the full tax loss in 2014.  Business traders should consider a Section 475 MTM election in 2015 to convert year-end wash sale losses on trading positions into business ordinary losses on Jan. 1. Turn garbage into gold!

3. You’ve set up your entity, but unless you execute compensation and employer 401(k) plans before year-end, its employee-benefit plan tax deductions will go down the drain.
Watch our video about how to use Paychex. It takes up to two weeks to sign up and execute compensation and an employer 401(k) plan, so get going today. If you want to save thousands of dollars with retirement plan and health insurance tax deductions (employee-benefit plans) for 2014, you must act on time. Plan to pay the 401(k) elective deferral portion by year-end. You can wait to fund the 25% profit-sharing plan through the due date of your 2014 tax return (including extension).

4. Don’t miss the boat on 2015; set up your trading business and entity for Jan. 2.
If you’ve been waiting to set up your trading business entity, starting on Jan. 2, 2015 is more convenient and beneficial. It breaks the chain on wash sales with your individual taxable and IRA accounts at year-end, since the entity is a different taxpayer identification number. 2015 tax compliance is easier and lower in cost, since you’ll report the entire year’s trading business activity on the entity return and skip individual tax compliance for part of the year in connection with trading activities.

It’s a little tricky to time the entity formation to a Jan. 2 start date. We can form a single-member LLC disregarded entity in December so you can execute the legal paper work and open the bank and trading accounts before year-end. We’ll add your spouse and or file the S-Corp election effective Jan. 1, 2015. As a disregarded entity in 2014, the SMLLC doesn’t force a partnership or S-Corp tax filing for 2014, even for a simple inactive entity tax return. However, in some states like California, we should wait until Jan. 2 to form the LLC, since that state charges a $800 minimum tax on LLCs even for just a few days in 2014. Consider our entity formation service.

5. Don’t get slapped with an underestimated tax payment penalty.
Get caught up with your 2014 estimated income taxes. Many traders underpay estimated taxes during the year, viewing the underestimated tax penalty as a low-cost margin loan. Why prepay taxes when you aren’t sure how the year will wind up? The Q4 estimate is due Jan. 15, 2015, so you can see where you stand at year-end first. Consider paying the state before year-end for another 2014 tax deduction, unless you trigger AMT and don’t get that benefit (state taxes are an AMT preference item).

6. The clock is ticking on RMDs, charitable contributions, gifts and FSAs.
Do your required minimum distributions (RMDs) from retirement plans, including Inheritor IRAs, and charitable contributions and gifts before year-end.  If you have a flexible spending account (FSA) with an employer, you must “use it or lose it” before year-end.

Contact us ASAP: We are standing by to help our clients with these transactions.

Happy holidays from all of us at Green NFH, LLC.

Adam Manning contributed to this blog.