Tag Archives: tax compliance

Tips for Traders on Preparing 2021 Tax Returns

January 26, 2022 | By: Robert A. Green, CPA

Presentation Slides

Join Robert A. Green, CPA, from GreenTraderTax.com, for insights and information to help traders file their 2021 federal tax returns timely and accurately in 2022.

  • Mr. Green interviews Darren L. Neuschwander, CPA, head of tax compliance services for Green, Neuschwander & Manning, LLC.
  • Learn how traders, eligible for trader tax status (TTS), maximize business expenses, make vital tax elections, and utilize pass-through entities for further tax benefits, including health insurance, retirement plans, QBI, EBL, NOL, and SALT deductions.
  • Learn all the various tax forms to use for multiple types of financial products, dealing with wash sales, and other accounting methods.
  • Learn tips for filing tax extensions and paying taxes on time to avoid penalties.
  • Learn common errors on TTS traders’ tax returns, leading to an IRS or state exam.
  • Learn how new tax legislation impacts 2021 tax filings for traders.

If you can’t join us live, register and you will automatically receive a link to the recording after the session ends. You don’t have to be a client of IBKR.

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Traders Should Focus On Q4 Estimated Taxes Due January 18

January 10, 2022 | By: Robert A. Green, CPA | Read it on

Many traders have substantial trading gains for 2021, and they might owe 2021 estimated taxes paid to the IRS quarterly. Unlike wages, taxes aren’t withheld from trading gains. Others can wait to make tax payments until April 18, 2022, when they file their 2021 tax return or extension.

The first three quarterly estimated tax payments were due April 15, June 15, and September 15, 2021, and the quarter four payment is due on January 18, 2022. Many new traders didn’t submit estimated payments for the first three quarters, waiting to see what Q4 brings. Also, some traders view skipping estimated tax payments like a margin loan with interest rates of 3% for Q1 and Q2 2021. With full transparency at year-end, traders can better assess the payment they should make for Q4 payments to minimize their underpayment penalties and interest.

The safe-harbor rule for paying estimated taxes says there’s no penalty for underpayment if the payment equals 90% of the current-year tax bill or 100% of the previous year’s amount (whichever is lower). If your prior-year adjusted gross income (AGI) exceeds $150,000 or $75,000 if married filing separately, then the safe-harbor rate rises to 110%. 

Activity in Jan. 2022 can trigger wash sale losses for 2021, thereby creating more income in 2021.

Suppose your 2020 tax liability was $40,000, and AGI was over $150,000. Assume 2021 taxes will be approximately $100,000, and you haven’t paid estimates going into Q4. Using the safe-harbor rule, you can spread out the payment, submitting $44,000 (110% of $40,000) with a Q4 voucher on January 18, 2022, and paying the balance of $56,000 by April 18, 2022. This is an excellent option to consider instead of sending $90,000 in Q4 (90% of $100,000). Consider setting aside that tax money due April 18, 2022, rather than risking it in the financial markets in Q1 2022. I’ve seen some traders lose their tax money owed and get into trouble with the IRS. (See the example below). 

If your 2020 income tax liability is significantly higher than your 2021 tax liability, consider covering 90% of the current year’s taxes with estimated taxes. Check your state’s estimated tax rules, too.

In the above example, the trader should calculate the underpayment of estimated tax penalties for Q1, Q2, and Q3 on the 2021 Form 2210. Consider using Form 2210’s Annualized Income Installment Method if the trader generated most of his trading income later in the year. The default method on 2210 allocates the annual income to each quarter, respectively.

Learn more about estimated taxes at https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes.

A forewarning: The recent market-sell off in January 2022 reminds me of similar circumstances in a few prior years. Here’s an example of what to avoid in 2022. Joe Trader has massive capital gains taxes to pay for 2021. However, due to a market correction in early 2022 and being on the wrong side of many trades, Joe might incur significant capital losses in early 2022 in trading securities (equity options and equities). Unfortunately, Joe might lose much of the tax money he owes the IRS and state for 2021 taxes. Investors will get stuck with a $3,000 capital loss limitation in 2022 and must carry over capital losses to subsequent years. However, Joe is eligible for trader tax status (TTS), so he submits a 2022 Section 475 election to the IRS by April 18, 2022, for ordinary gain or loss treatment with mark-to-market accounting.

With Section 475, Joe’s 2022 trading losses are “ordinary” and offset his other 2022 income, like retirement plan distributions. However, the 2017 TCJA legislation has an “excess business loss” (EBL) limitation in 2022 of $540,00 (married)/$270,00 (other taxpayers). EBL over the limit becomes a net operating loss (NOL) carryforward, which offsets income of any kind in subsequent years. Unfortunately, TCJA doesn’t permit net operating loss (NOL) carrybacks for 2022. Before 2018, traders could carry back massive NOLs to replenish their trading capital and stay in business.

Traders and investors in futures contracts can consider a Section 1256 loss carryback election. Rather than use the 1256 loss in the current year, taxpayers may deduct 1256 losses on amended tax return filings, applied against Section 1256 gains only. It’s a three-year carryback; unused amounts carry forward. TCJA repealed most NOL carrybacks, so the 1256 loss carryback is a trader’s only remaining carryback opportunity.

Star Johnson, CPA, contributed to this blog post.

Tips for Professional Traders Getting Ready to File 2021 Tax Returns

December 28, 2021 | By: Robert A. Green, CPA

Presentation Slides

Join Robert A. Green, CPA, GreenTraderTax.com, for insights and information to help traders file their 2021 federal tax returns timely and accurately in 2022.

  • Learn how traders, eligible for trader tax status (TTS), maximize business expenses, make vital tax elections, and utilize pass-through entities for further tax benefits, including health insurance, retirement plans, QBI, EBL, NOL, and SALT deductions.
  • Learn all the various tax forms to use for multiple types of financial products, dealing with wash sales, and other accounting methods.
  • Learn tips for filing tax extensions and paying taxes on time to avoid penalties.
  • Learn common errors on TTS traders’ tax returns, leading to an IRS or state exam.
  • Learn how new tax legislation impacts 2021 tax filings for traders.

The IRS postponed the 2020 individual tax deadline to May 17

April 6, 2021 | By: Robert A. Green, CPA

The IRS postponed the 2020 individual tax filing and payment deadline to May 17, 2021, including the 2021 Section 475 election. For Texas, Oklahoma, and Louisiana residents, the deadlines are June 15, 2021. 

April 13, 2021: The IRS continues to assert that 2021 first quarter estimated tax payments are due April 15, even though they postponed the 2020 individual tax filing and payment deadline to May 17, 2021. See IRS notice Electing To Apply a 2020 Return Overpayment From a May 17 Payment with Extension Request to 2021 Estimated Taxes

March 29, 2021: The good news is the individual Section 475 election is due May 17, 2021, with the 2020 tax return or extension. The IRS issued formal guidance Notice 2021-21, “Relief For Form 1040 Filers Affected By Ongoing Coronavirus Disease 2019 Pandemic.” The IRS notice states, “Finally, elections that are made or required to be made on a timely filed Form 1040 series (or attachment to such form) will be timely made if filed on such form or attachment, as appropriate, on or before May 17, 2021.” The IRS notice also postponed the 2020 IRA and HSA contribution tax deadline to May 17, 2021.

March 17, 2021: Tax Day for individuals extended to May 17: Treasury, IRS extend filing and payment deadline. “The Treasury Department and Internal Revenue Service announced today that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021. The IRS will be providing formal guidance in the coming days. Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This relief does not apply to (2021) estimated tax payments that are due on April 15, 2021. The IRS urges taxpayers to check with their state tax agencies for those details.” (IRS Issue Number: IR-2021-59). Intuit: State Tax Deadline Updates. The postponement does not apply to C-Corps, trusts, and estates.

Feb. 22, 2021: For residents of Texas, Oklahoma, and Louisiana, the IRS postponed the April 15, 2021 tax filing and payment deadline until June 15, 2021, after a federal disaster declaration in February 2021 due to winter storms. It also extended the 2021 Q1 estimated income tax payment deadline from April 15 to June 15, 2021. The delay includes various 2020 business returns due on March 15, including partnerships and S-Corps. The postponement also applies to the 2021 Section 475 election for individuals and pass-through entities in these three states.

April 15 Tax Deadline Moved To July 15 & CARES Act

March 28, 2020 | By: Robert A. Green, CPA

The IRS moved the April 15 tax deadline to July 15, 2020, thereby postponing 2019 tax filings and tax payments. The postponement applies to 2019 individual income tax returns, gift, trust, estate, and ex-pat returns, and IRA, and HSA contributions. It also applies to 2020 estimated tax payments for Q1 and Q2.

All states with a personal income tax have extended their April 15 due dates.

On April 9, 2020, the IRS postponed the 2020 Section 475 election deadline for individuals from April 15 to July 15, 2020.

The new CARES Act includes significant economic aid and tax relief provisions. If you have NOLs from business activities in 2018, 2019, and 2020, CARES allows five-year NOL carrybacks for immediate tax relief. Prior law TCJA had repealed NOL carrybacks and only allowed carryforwards. Traders, eligible for trader tax status (TTS), might have NOLs from trading expenses and Section 475 ordinary losses. With NOL carrybacks allowed for 2020, it makes a 475 election essential if you have YTD losses.

Join CPAs Robert A. Green and Darren Neuschwander of GreenTraderTax.com, to learn about these developments.

Webinar hosted and recording produced by Interactive Brokers. Everyone is welcome; you don’t have to be a client of IB.

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March 16 Is Tax Deadline For S-Corp And Partnership Extensions And Elections (Live Updates)

February 27, 2020 | By: Robert A. Green, CPA | Read it on

Updates

May 20: 2019 calendar-year partnership and S-Corp tax returns, and 2020 Section 475 elections for partnerships and S-Corps, were due March 16, 2020. These pass-through tax returns and entity 475 elections are not eligible for virus tax relief with the July 15, 2020 postponement deadline. Postponement relief is limited to 2019 tax returns due April 1, 2020, or after, and the March 16 deadline was before April 1. However, fiscal-year partnership or S-Corp tax returns due on April 1, 2020, or later are eligible for the July 15 deadline.

Traders have calendar-year partnerships and S-Corps, so these entities are not eligible for the July 15 postponement date. Most traders filed 2019 partnership or S-Corp extensions by March 16, some along with 2020 Section 475 elections for the entity. Some of these traders asked our firm if their entity could take advantage of the postponed deadline for making a Section 475 MTM election. The answer is no. Individual traders (sole proprietors) are eligible for July 15 relief for filing 2019 individual tax returns, extensions, and 2020 individual Section 475 elections.

March 24: The IRS published FAQs to support Notice 2020-18 for the April 15 tax-deadline postponement to July 15: Filing and Payment Deadlines Questions and Answers. Unfortunately, 2019 partnership and S-Corp tax returns or extensions that were due March 16, 2020, are not eligible for this IRS relief. 

March 13: The president declared a national emergency (Stafford Act), allowing the IRS to postpone tax filings/payments and to remove penalties and interest. Partnership and S-Corps are due March 16, so I hope the IRS acts fast! (See April 15 Tax Deadline.Might Get Coronavirus Relief)

Original blog post, dated Feb. 27, 2020

March 16 is the deadline for filing 2019 S-Corp and partnership tax returns, or extensions, 2020 S-Corp elections for existing entities, and 2020 Section 475 elections for a pass-through entity. Don’t miss any of these tax filings or elections; it could cost you.

2019 S-Corp and partnership tax extensions
Extensions are easy to prepare and file for S-Corps and partnerships since they pass-through income and loss to the owner, usually an individual. Generally, pass-through entities are tax-filers, but not taxpayers.

S-Corps and partnerships use Form 7004 (Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns). Extensions give six additional months to file a federal tax return — by Sept. 15, 2020.

Some states require a state extension filing, whereas others accept the federal extension. Some states have S-Corp franchise taxes, excise taxes, or minimum taxes, and payments are usually due with the extensions by March 16. LLCs filing as partnerships may have minimum taxes or annual reports due to the extension by March 16. States assess penalties and interest, often based on payments due.

See S-Corp 2019 Form 1120-S instructions, “Interest and Penalties” on page 4:

“Late filing of return. A penalty may be assessed if the return is filed after the due date (including extensions) or the return doesn’t show all the information required, unless each failure is due to reasonable cause. See Caution, earlier. For returns on which no tax is due, the penalty is $205 for each month or part of a month (up to 12 months) the return is late or doesn’t include the required information, multiplied by the total number of persons who were shareholders in the corporation during any part of the corporation’s tax year for which the return is due. If tax is due, the penalty is the amount stated above plus 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. The minimum penalty for a return that is more than 60 days late is the smaller of the tax due or $435.

Failure to furnish information timely. For each failure to furnish Schedule K-1 to a shareholder when due and each failure to include on Schedule K-1 all the information required to be shown (or the inclusion of incorrect information), a $270 penalty may be imposed. If the requirement to report correct information is intentionally disregarded, each $270 penalty is increased to $550 or, if greater, 10% of the aggregate amount of items required to be reported. The penalty won’t be imposed if the corporation can show that not furnishing information timely was due to reasonable cause. See Caution, earlier.

If the corporation receives a notice about penalties after it files its return, send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria. Don’t attach an explanation when the corporation’s return is filed.”

See partnership 2019 Form 1065 instructions, “Penalties” on page 6:

“Late Filing of Return. A penalty is assessed against the partnership if it is required to file a partnership return and it (a) fails to file the return by the due date, including extensions, or (b) files a return that fails to show all the information required, unless such failure is due to reasonable cause. The penalty is $205 for each month or part of a month (for a maximum of 12 months) the failure continues, multiplied by the total number of persons who were partners in the partnership during any part of the partnership’s tax year for which the return is due. If the partnership receives a notice about a penalty after it files the return, the partnership may send the IRS an explanation and the Service will determine if the explanation meets reasonable-cause criteria. Do not attach an explanation when filing the return.

Failure To Furnish Information Timely. For each failure to furnish Schedule K-1 to a partner when due and each failure to include on Schedule K-1 all the information required to be shown (or the inclusion of incorrect information), a $270 penalty may be imposed for each Schedule K-1 for which a failure occurs. The maximum penalty is $3,339,000 for all such failures during a calendar year. If the requirement to report correct information is intentionally disregarded, each $270 penalty is increased to $550 or, if greater, 10% of the aggregate amount of items required to be reported. There is no limit to the amount of the penalty in the case of intentional disregard.”

2020 S-Corp elections

Traders qualifying for trader tax status (TTS) and interested in employee benefit plan deductions, including health insurance and retirement plan deductions, probably need an S-Corp. They should consider a 2020 S-Corp election on Form 2553 for an existing trading entity, due by March 16, 2020, or form a new company and file an S-Corp election within 75 days of inception. Most states accept the federal S-Corp election, but a few states do not; they require a separate S-Corp election filing by March 16. If you overlooked filing a 2019 S-Corp election by March 15, 2019 and intended to elect S-Corp tax treatment as of that date, you may qualify for IRS relief. (See Late Election Relief.) (Sole proprietor traders do not have self-employment income, which means they cannot have self-employed health insurance and retirement plan deductions. TTS partnerships face significant obstacles in achieving self-employment income.)

2020 Section 475 MTM elections for S-Corps and partnerships

TTS traders should consider attaching a 2020 Section 475 election statement to their 2019 tax return or extension due by March 16 for partnerships and S-Corps or by April 15 for individuals. Section 475 turns 2020 capital gains and losses into ordinary gains and losses, thereby avoiding the capital loss limitation and wash sale loss adjustments (tax loss insurance). Section 475 income, net of TTS expenses, is eligible for the “qualified business income” (QBI) deduction subject to taxable income limitations.

If a TTS partnership or S-Corp wants to revoke a prior-year Section 475 election, a revocation election statement is due by March 16, 2020.

If you need help, consider a consultation.

Last-Minute Tax Tips & Extensions For Traders

February 25, 2020 | By: Robert A. Green, CPA

Many traders are filing 2019 individual income tax returns or automatic extensions, and 2020 Section 475 elections, close to July 15, 2020, the postponed tax deadline. Join CPAs Robert A. Green and Darren Neuschwander of GreenTraderTax.com as they discuss:

  • Last-minute tax tips.
  • How to benefit from filing an extension for three additional months until October 15, 2020, for filing your tax return, but not for paying taxes due.
  • Options if you cannot pay the IRS what you owe.
  • The IRS also postponed Q1 and Q2 2020 estimated tax payments until July 15, 2020.
  • Should you file a 475 election for 2020 by July 15, 2020?
  • The CARES Act positively impacts traders for 2018, 2019, and 2020. CARES suspended the excess business loss limitation and allowed five-year NOL carrybacks and or 100% NOL carryforwards.
  • CARES tax relief and economic aid that applies to traders.
  • Current developments on pending further Covid-19 tax legislation.

Webinar hosted and recording produced by Interactive Brokers. Everyone is welcome; you don’t have to be a client of IB.

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Tips For Professional Traders When Preparing 2019 Tax Returns

February 3, 2020 | By: Robert A. Green, CPA

If you traded actively in 2019, you should watch this webinar before preparing your 2019 tax returns. Join CPAs Robert A. Green, Darren L. Neuschwander, and Adam W. Manning from Green, Neuschwander & Manning, LLC. There are several new and revised 2019 tax forms based on the implementation of the 2017 Tax Cuts and Jobs Act.

  • Learn how traders, eligible for trader tax status (TTS), maximize business, home office, and startup expenses using critical tax-reporting strategies.
  • Don’t solely rely on broker 1099-Bs: There might be opportunities to switch to lower 60/40 capital gains rates in Section 1256, use Section 475 ordinary loss treatment if elected on time, and report wash sale losses differently.
  • Make vital 2020 tax elections on time.
  • Learn common errors on tax returns for TTS traders, which can lead to an IRS or state exam.
  • Learn tips for filing extensions and paying taxes.

Lightspeed customers can learn about common errors and opportunities that professional traders can make on tax returns.

Webinar hosted and recording produced by Lightspeed. Everyone is welcome; you don’t have to be a client of Lightspeed.  LightspeedWebinar Lightspeed image

Tips For Traders On Preparing 2019 Tax Returns

January 21, 2020 | By: Robert A. Green, CPA

Join CPAs Robert A. Green, Darren L. Neuschwander, and Adam W. Manning from Green, Neuschwander & Manning, LLC.

  • There are several new and revised 2019 tax forms based on the implementation of the 2017 Tax Cuts and Jobs Act.
  • Learn how traders, eligible for trader tax status (TTS), maximize business, home office, and startup expenses using critical tax-reporting strategies.
  • Don’t solely rely on broker 1099-Bs: There might be opportunities to switch to lower 60/40 capital gains rates in Section 1256, use Section 475 ordinary loss treatment if elected on time, and report wash sale losses differently.
  • Make vital 2020 tax elections on time.
  • Learn common errors on tax returns for TTS traders, which can lead to an IRS or state exam.
  • Learn tips for filing extensions and paying taxes due April 15, 2020.

Webinar hosted and recording produced by Interactive Brokers. Everyone is welcome; you don’t have to be a client of IB.

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Highlights From Green’s 2020 Trader Tax Guide

December 12, 2019 | By: Robert A. Green, CPA

Green’s 2020 Trader Tax Guide focuses on traders’ unique tax needs and is updated to include the latest tax strategies, pitfalls, tweaks, warnings, and benefits. 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. Join author Robert A. Green, CPA, as he explains tax tips featured in the guide.

Webinar hosted and recording produced by Interactive Brokers. Everyone is welcome; you don’t have to be a client of IB.

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