Tag Archives: securities

Capital Loss Carryovers

August 17, 2016 | By: Robert A. Green, CPA

Many traders mistakenly think they can only utilize $3,000 of capital-loss carryovers each year going forward, so they worry it can take a lifetime to use up these losses. They don’t realize capital losses offset subsequent-year capital gains without limitation, which means if they remain in capital gains treatment (rather than electing Section 475 MTM ordinary income), they can use those capital losses. The $3,000 limitation is against non-capital gains income, not capital gains.

Some traders mistakenly think individually generated capital-loss carryovers incurred before trading in a new pass-through entity will be lost. The new company can forgo a Section 475 election and pass-through capital gains on a Schedule K-1 to individual tax returns (Schedule D), where individual capital-loss carryovers offset them.

See Green’s Trader Tax Guide Chapter 3 on Financial Products for more information.

Accounting Services

September 4, 2014 | By: Robert A. Green, CPA

We offer our trade accounting service only in conjunction with our tax compliance service.

We offer an accounting service for traders in securities and Section 1256 contracts using specialized software that’s very robust and can handle the most hyperactive traders. Our accounting service respects our tax content across the board. We’ve been rendering this accounting service since 2000.

We also offer an accounting service for cryptocurrency traders. Accounting in this area can be a minefield without using the proper software. All types of coin transactions need to be included. Otherwise, the results cannot be accurate. Additionally, some crypto tax treatment questions remain unanswered by the IRS. We can assure you that we will stay on top of the developments.

Accounting Service For Securities Traders

Accounting for trading gains and losses is the responsibility of securities traders; they must report each securities trade and related wash-sale loss adjustments on IRS Form 8949 in compliance with Section 1091, which then feeds into Schedule D (capital gains and losses).

Broker-issued securities Form 1099-Bs provide cost-basis reporting information, but they don’t provide taxpayers everything they need for tax reporting if the taxpayer has multiple trading accounts or trades equities and equity options. Brokers calculate wash sales based on identical positions (an exact symbol only) per separate brokerage account. But Section 1091 requires taxpayers to calculate wash sales based on substantially identical positions (between equities and equity options and equity options at different exercise dates) across all their accounts including IRAs — even Roth IRAs. The best accounting solution for generating a correct and compliant Form 8949 is software that’s compliant with Section 1091. Don’t just rely on a Form 1099-B. (Exception: if there is only one brokerage account, the trading is only in equities, and there are no cost-basis adjustments including wash-sale losses). Many tax preparers and taxpayers continue to disregard Section 1091 rules, even after acknowledging differences with broker 1099-B rules. They do so at their peril if caught by the IRS.

When you consider a securities trade accounting software and Web-based solution, ask the vendor if they calculate wash sales based on Section 1091, and if not, you may want to skip that solution. TurboTax ads imply you can just import your 1099-B. You’ll spend a lot of time finding in their small fine print about having to make Section 1091 adjustments on your own. Some brokers offer a professional trade accounting software, but it makes wash-sale loss adjustments on identical positions, which is non-compliant.

We offer a full professional accounting service
We download your actual trades for the tax year into our trade accounting solution. We also download January of the subsequent year looking for wash sale (WS) loss adjustments at current year-end, if you not using Section 475 MTM. We will generate Form 8949 that is compliant with Section 1091 rules, and or Form 4797 for Section 475 trades. We also prepare Form 6781 for Section 1256 contracts. You can give these tax forms to your tax preparer or our CPAs for our tax compliance service.

Contact us to purchase this service.

Accounting Service For Cryptocurrency Traders

If you invested in cryptocurrencies and sold or spent some during the year, it likely triggered a capital gain, loss, or other income, which you should report on your tax return. There is taxable income or loss on all coin transactions, including coin-to-currency trades, coin-to-coin trades, receipt of coin in some hard fork or split transaction, purchases of goods or services using a coin, and mining income. There are various types of fees related to coin transactions, and the tax treatment varies.

Cryptocurrency tax reporting is complicated and voluminous. We use a coin accounting solution to download coin transactions from your coin exchanges. You need to review the download file to be sure all your transactions were imported correctly. It’s normal to have some transactions entered manually.

By the default, we use the first-in-first-out (FIFO) accounting method for cost-basis on coin capital gain and loss transactions. The IRS requires the “specific identification” (SI) accounting method on intangible property, but most coin traders are unable to use SI since coin exchanges must confirm each SI transaction, and they do not.

As intangible property, cryptocurrencies are not subject to Section 1091 wash-sale loss rules for securities. A Section 475 election also cannot apply to coin since it’s not a security or commodity (Section 1256 contract). (See our coin tax and accounting content.)

Contact us to purchase this service.

Accounting Service General Ledger

Entities require a balance sheet and profit and loss statement. That means debits and credits and reconciling accounting to bank statements.

Contact us to purchase this service.

If you have any questions about our accounting services please contact us.

Exchange-Traded Funds (ETFs)

August 28, 2014 | By: Robert A. Green, CPA

Securities, commodities, and precious metals ETFs use different structures, and tax treatment varies.

Securities ETFs usually are regulated investment companies (RICs). Like mutual fund RICs, securities ETFs pass through their underlying ordinary and qualifying dividends to investors. Selling a securities ETF is deemed a security sale, calling for short- and long-term capital gains tax treatment using the realization method. A securities ETF is a security, so wash-sale loss adjustments or Section 475 apply if elected.

Commodities/Futures ETFs. Regulators do not permit commodities/futures ETFs to use the RIC structure, so usually, they are structured as publicly traded partnerships (PTPs). Commodities/Futures ETFs issue annual Schedule K-1s passing through their underlying Section 1256 tax treatment to investors, as well as other taxable items. Selling a commodities ETF is deemed a sale of a security and calls for short- and long-term capital gains tax treatment using the realization method. Wash-sale loss adjustments or Section 475 apply if elected because a commodities ETF PTP is widely held.

Taxpayers invested in commodities/futures ETFs may need to make some cost-basis adjustments on Form 8949 to capital gains and losses, ensuring they don’t double count some of the Schedule K-1 pass-through items. For example, if the K-1 passes through Section 1256 income to Form 6781, the taxpayer should also add that income to the cost basis on Form 8949. Otherwise, it will be double-counted, causing an overstatement of tax liability. Form 1099-Bs and trade accounting solutions do not make these cost-basis adjustments from K-1 income/loss, so be sure to adjust Form 8949 accordingly.

Physically backed precious metals ETFs. These ETFs may not use the RIC structure either. Although they could use the PTP structure, they usually choose the publicly traded trust (PTT) structure (also known as a grantor trust). A PTT issues an annual Schedule K-1, passing through tax treatment to the investor, which, in this case, is the “collectibles” capital gains rate on sales of physically-backed precious metals (such as gold bullion). Selling a precious metal ETF is deemed a sale of a precious metal, which is a collectible. If collectibles are held over one year (long-term), sales are taxed at the “collectibles” capital gains tax rate — capped at 28%. (If the ordinary rate is lower, use it.) That rate is higher than the top regular long-term capital gains rate of 20% (2020 and 2021). Short-term capital gains are taxed at the ordinary rate. Physically backed precious metals ETFs are not securities, so they are not subject to wash-sale loss adjustments or Section 475 if elected. (For more information, see our blog Tax Treatment for Precious Metals, which includes discussion on all sorts of precious metal ETFs.)

For more information, see Green’s Trader Tax Guide