Tag Archives: tax planning

Last-Minute Tax Tips For Traders

March 19, 2019 | By: Robert A. Green, CPA

Many traders are filing 2018 tax returns, extensions, and Section 475 elections close to the deadline of April 15, 2019. Join Robert A. Green, CPA of GreenTraderTax.com to discuss several good reasons to file an extension, and his blog post “Tax Extensions: 12 Tips To Save You Money.” Mr. Green will set aside 15 to 30 minutes dedicated to answering questions, so come prepared.

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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How to Qualify for Trader Tax Status and Save (TradeStation)

March 15, 2019 | By: Robert A. Green, CPA

On March 19, join Robert A. Green, CPA, of GreenTraderTax as he breaks down the advantages of filing with trader tax status (TTS). Among other benefits,

  • TTS traders may use business expense treatment on 2018 and 2019 tax returns. Learn how to qualify for TTS.
  • Learn how TTS traders use an S-Corp to unlock employee benefit deductions for health insurance and retirement plans.
  • TTS securities traders should consider a 2019 Section 475 election by April 15, 2019, for tax loss insurance: Exemption from capital loss limitations, and wash sale loss adjustments.
  • The qualified business income (QBI) deduction might apply to traders with 475 income, but it’s uncertain at this time.

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

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Get a 100% rebate from TS on your GNMTraderTax purchase.

How To Maximize Tax Deductions For Traders (Interactive Brokers)

February 20, 2019 | By: Robert A. Green, CPA

The Tax Cuts And Jobs Act (TCJA) regulations, tax forms, and instructions have some surprises and unintended consequences. In this Webinar, GreenTraderTax CPA Robert A. Green will discuss how to maximize tax deductions for traders.

- There are lingering questions about whether a trader is eligible for a “qualified business income” (QBI) deduction.
- Learn how to claim trader tax status (business expense treatment).
- Consider a 2019 Section 475 election for tax loss insurance.

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 Traders On Preparing 2018 Tax Returns (Lightspeed)

February 6, 2019 | By: Robert A. Green, CPA

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

If you traded actively in 2018, you should watch this webinar before preparing your 2018 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 2018 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 2019 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.

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

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IRS Confirms Section 475 Is Eligible For QBI Tax Deduction

January 21, 2019 | By: Robert A. Green, CPA | Read it on

Good news for traders: Section 199A final regs confirm QBI includes Section 475 ordinary income and loss.

On Jan. 18, 2019, the IRS issued final 199A regs for the 2017 Tax Cuts and Jobs Act (TCJA) 20% qualified business income (QBI) deduction. The final regs update the August 2018 proposed/reliance 199A regs and confirm that QBI includes Section 475 ordinary income/loss.

Based on our interpretation of TCJA and the proposed/reliance regs, we figured QBI included Section 475 ordinary income/loss, but it was uncertain. Our previous content stated that QBI “likely” included Section 475 ordinary income/loss. The final and proposed/reliance regs each state that QBI expressly excludes capital gains and losses, and also excludes Section 954 items of ordinary income, including forex Section 988 and notional principal contracts.

Making our case to the IRS
After noticing that the proposed/reliance regs were silent about Section 475 income/loss, I contacted one of the lawyers at the Office of Chief Counsel listed on the 199A proposed regs.

The attorney called me back after he saw my interview in Tax Notes, “Groups Urge IRS to Rethink 199A Business Income Rules.” I presented our firm’s rationale for including Section 475 ordinary income/loss in QBI for TTS traders and suggested he read and watch our content. The IRS attorney said my rationale sounded “plausible” in his opinion.

Excerpts from final regs
Final 199A regs, p. 55-56:

“Given the specific reference to section 1231 gain in the proposed regulations, other commenters requested guidance with respect to whether gain or loss under other provisions of the Code would be included in QBI. One commenter asked for clarification about whether real estate gain, which is taxed at a preferential rate, is included in QBI. Additionally, other commenters requested clarification regarding whether items treated as ordinary income, such as gain under sections 475, 1245, and 1250, are included in QBI.

To avoid any unintended inferences, the final regulations remove the specific reference to section 1231 and provide that any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss, including any item treated as one of such items under any other provision of the Code, is not taken into account as a qualified item of income, gain, deduction, or loss. To the extent an item is not treated as an item of capital gain or capital loss under any other provision of the Code, it is taken into account as a qualified item of income, gain, deduction, or loss unless otherwise excluded by section 199A or these regulations.

Similarly, another commenter requested clarification regarding whether income from foreign currencies and notional principal contracts are excluded from QBI if they are ordinary income. Section 199A(c)(3)(B)(iv) and §1.199A-3(b)(3)(D) provide that any item of gain or loss described in section 954(c)(1)(C) (transactions in commodities) or section 954(c)(1)(D) (excess foreign currency gains) is not included as a qualified item of income, gain, deduction, or loss. Section 199A(c)(3)(B)(v) and §1.199A-3(b)(3)(E) provide any item of income, gain, deduction, or loss described in section 954(c)(1)(F) (income from notional principal contracts) determined without regard to section 954(c)(1)(F)(ii) and other than items attributable to notional principal contracts entered into in transactions qualifying under section 1221(a)(7) is not included as a qualified item of income, gain, deduction, or loss. The statutory language does not provide for the ability to permit an exception to these rules based on the character of the income. Accordingly, income from foreign currencies and notional principal contracts described in the listed sections is excluded from QBI, regardless of whether it is ordinary income.”

Parsing the language in the final 199A regs
In the proposed 199A regs, QBI excluded all capital gains and losses, and ordinary income/loss items expressly listed in Section 954. Section 954 does not include Section 475 ordinary income/loss. In the proposed regs, QBI expressly included Section 1231 losses from the sale of business property, whereas, QBI excluded Section 1231 capital gains. Section 475 ordinary income/loss is similar to Section 1231 ordinary losses, and it’s not in Section 954, so we determined that QBI likely included Section 475 ordinary income/loss.

The final 199A regs acknowledge the uncertainty and tax writers fixed it in the above language. They opened the door for Section 1231 losses to include more items like Section 475 ordinary income/loss, reiterating that it must not be on the Section 954 list, which Section 475 is not.

There’s an important caveat
Section 199A interacts with a modified Section 864(c), and Section 864 might deny QBI treatment to TTS traders and hedge funds. On the one hand, there is a rationale for QBI treatment for TTS traders, as expressed in this blog post, and Section 864 conflicts with that case. There are unresolved questions which I expect to write a blog post about it soon. Considering conflicts with Section 864, I think QBI treatment for traders is uncertain at this time.

How QBI might work for a TTS trading business
The proposed and final 199A regs state that traders eligible for trader tax status are a “specified service trade or business” (SSTB), so the SSTB taxable income (TI) cap applies. Taxpayers who make one dollar over the TI cap will not be allowed a QBI deduction on SSTB QBI. On the other hand, non-SSTB activity is not restricted to the TI cap, although the W-2 wage and property limitations apply over the TI threshold.

For 2018, the SSTB TI cap is $415,000/$207,500 (married/other taxpayers). The phase-out range below the cap is $100,000/$50,000 (married/other taxpayers), in which the QBI deduction phases out for an SSTB. The 50% W-2 wage and property basis limitations also apply within the phase-out range. For 2018, the TI threshold is $315,000/$157,500 (married/other taxpayers): If a taxpayer is below the TI threshold, there are no phase-out, wage or property limitations for SSTB and non-SSTB.

For 2019, the SSTB TI cap increases to $421,400/$210,700 (married/other taxpayers) based on the inflation adjustment. The phase-out range remains the same, so for 2019, the TI threshold is $321,400/$160,700 (married/other taxpayers).

Hedge funds with TTS and Section 475 ordinary income/loss should report QBI, too. Investors in these hedge funds are eligible for a QBI deduction if they are under the TI cap. Even without a 475 election, trading SSTB has QBI losses from trading expenses.

Investment managers are also SSTB, and they have QBI from advisory fees. Carried interest as a profit allocation of Section 475 ordinary income/loss is QBI, too. Carried interest in capital gains is not.

It’s more crucial to qualify for TTS than ever before
TTS allows business expense treatment, whereas, TCJA suspended “certain miscellaneous itemized deductions subject to the 2% floor,” which includes investment fees and investment expenses. TCJA still allows investors itemized deductions for investment-interest expenses limited to investment income, and stock borrow fees as other itemized deductions. TTS business expenses allow a long list of deductions from gross income, including home office, and that’s far better!

TTS traders may elect Section 475 mark-to-market (MTM) accounting on securities and or commodities (Section 1256 contracts). Securities traders appreciate that Section 475 trades are exempt from dreaded wash-sale loss adjustments and the $3,000 capital loss limitation. I call it “tax loss insurance,” because 475 ordinary losses lead to much faster tax refunds. (TCJA did repeal NOL carrybacks, forcing NOL carryforwards, instead.) TTS traders are entitled to segregate investment positions to achieve lower tax rates on long-term capital gains. TTS traders prefer to skip Section 475 on commodities to retain lower 60/40 capital gains rates on Section 1256 contracts.

Now with final 199A regs, there’s still uncertainty for QBI treatment for TTS traders. Profitable TTS traders might want to consider a Section 475 election to be perhaps eligible for a potential QBI deduction. In some years, the trader might be under the TI cap, allowing a QBI deduction, and in other years, he might have a (good) problem of exceeding the cap for no QBI deduction.

Married taxpayers should consider filing separately, as that might unlock a QBI deduction for one spouse since the other spouse might have income exceeding the SSA income cap. TCJA equalized the tax rates for filing jointly vs. separately.

TTS traders with Section 475 ordinary losses might be unhappy. For example, assume a trader has $100,000 of QBI from a consulting business. She also has TTS/Section 475 ordinary losses of $40,000, so her aggregate QBI is $60,000, which reduces the QBI deduction.

Section 199A regs are complicated
There are complex issues over what constitutes an SSTB vs. non-SSTB, how to calculate the W-2 wage and property limitations, definitions of QBI, and more.

Taxpayers have to calculate the QBI deduction on whichever is lower: aggregate QBI or taxable income minus net capital gains/losses.

If you expect to receive a 2018 Schedule K-1 containing QBI tax information, then consider filing an automatic extension by April 15. I assume that many pass-through entities won’t issue final 2018 Schedule K-1s until after that date. It’s great that the IRS issued the final 199A regs now, but there are still conflicts and unresolved questions. Look for QBI items on partnership Schedule K-1 line 20 “Other Information” marked with various codes for 199A items of income, wages, property and more. See the K-1 instructions for line 20.

Elect Section 475 on time
Individual TTS traders need to file a 2019 Section 475 election statement with the IRS by April 15, 2019. Existing partnerships and S-Corps need to file a 2019 Section 475 election statement with the IRS by March 15, 2019. New taxpayers (i.e., new entities) may elect Section 475 within 75 days of inception by internal election. Existing taxpayers have a second step to file a Form 3115 with their 2019 tax return.

Learn more about TTS, Section 475, QBI and entity solutions in Green’s 2019 Trader Tax Guide.

Darren L. Neuschwander, CPA contributed to this blog post.

I revised this blog post on March 5, 2019, in conjunction with my new blog post Uncertainty About Using QBI Tax Treatment For Traders

Traders Have Unique Benefits For This Tax Season (Interactive Brokers)

January 17, 2019 | By: Robert A. Green, CPA

Tax season is underway, and TV commercials from tax software companies are stressing the need for CPAs on-demand. This is probably because 2018 is the first year of changes from the 2017 Tax Cuts and Jobs Act (TCJA). Join Robert A. Green, CPA of GreenTraderTax to review highlights from Green’s 2019 Trader Tax Guide.

- Business traders fare better.
- Can traders deduct trading losses?
- Tax treatment on financial products.
- Entities for traders.
- Retirement plans for traders.
- Tax Cuts and Jobs Act impact on traders.
- 20% deduction on qualified business income.
- Investment management carried interest.

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 Traders On Preparing 2018 Tax Returns (TradeStation)

January 10, 2019 | By: Robert A. Green, CPA

Presentation Slides

If you traded actively in 2018, you should watch this Webinar before preparing your 2018 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 2018 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 2019 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.

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

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Get a 100% rebate on your GNM Trader Tax purchase

Tips For Traders On Preparing 2018 Tax Returns (Interactive Brokers)

December 10, 2018 | By: Robert A. Green, CPA

If you traded actively in 2018, you should watch this Webinar before preparing your 2018 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 2018 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 2019 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 Q4 estimates and April 15th planning.

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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Q&A With GNM Partners On Year-End Tax Planning

November 16, 2018 | By: Robert A. Green, CPA

Join CPAs Robert A. Green, Darren L. Neuschwander, and Adam W. Manning of GNM for this Q&A session. We’ve recently published blog posts and Webinar recordings on year-end planning and offer this opportunity to get answers. Email us brief questions in advance, or during the event. A recording will be available after the session. (The recording is 90 minutes).

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Traders Have Unique Issues For Year-End Tax Planning (Interactive Brokers)

October 31, 2018 | By: Robert A. Green, CPA

While the 2017 Tax Cuts and Jobs Act did not change trader tax status, Section 475 MTM, wash-sale loss rules on securities, and more, there is still plenty to consider. Our Nov. 7 Webinar recording How Traders Can Save Taxes Before Year-End covered critical moves to make before the calendar year expires. But that’s just the tip of the hat.

Join Robert A. Green, CPA in this Webinar for more action items to initiate sooner, rather than later.

Learn how trader S-Corps must execute year-end payroll to unlock 2018 health insurance and retirement plan deductions. And, if you missed the boat for 2018, how to form an LLC with S-Corp election that’s ready for trading on Jan. 1, 2019.

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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