2. Tax Strategies For The Active Trader
Presented By:
DAYTRADERTAX.COM
A Division of
Mann & Company CPA’s P.C.
Broomfield, CO
(303)

3. Mann & Company CPA’s P.C. Who We Are & Qualifications
Established in 1987, seventeen years experience
Full Service CPA Firm servicing a variety of clientele, with an emphasis on the active Trader
Nationwide client base served through our website Daytradertax.com
Located locally, in Broomfield, CO

4. Services We Provide Income Tax Planning & Preparation
Full Accounting and Payroll Services
Incorporation Services
Stock Reconciliation and Schedule D Preparation
Consulting Services & Business Planning
Financial Planning
(Free Seminars To The DTG When Undue Pressure Applied By Ron R. & Eliot W.)

5. The Importance Of Making A Mark To Market Election
The Tax Code is Stacked Against Traders
Taxation of Profits, Limited Deductibility Of Losses
Inability to Offset Prior Gains With Current Losses
Prohibitive Wash Sale Rules
Limitation on Margin Interest Deductions
Limitation on Deduction of Trading Expenses
The Mark To Market Election Eliminates These (Except Taxation of Profits)

6. Benefits Of The Election
No Limitation On Deductibility Of Losses
Current Year Losses Can Be Applied To Previous Years Gains
Create Earned Income If Trading Inside A Corporation For The Purpose Of Establishing Retirement & Fringe Benefit Plans.
No Wash Sale Rules
Easy Accounting For Trades
Can Still Take Advantage Of LTCG Rates In Non-Trading Accounts, Or On Designated Securities In The Trading Account

7. Down Side Of The Election
Trading Income Becomes “Ordinary Income” As Opposed To “STCG Income”, So Should Not Make Election If You Have Significant Unused Capital Losses
If Applied To Your Futures Trading Account, You Will Lose the Advantage Of The 60/40 LTCG vs. STCG Split, But Losses Will Be Fully Deductible
Must Meet Certain Criteria To Qualify

8. Who Qualifies For the Election?
Can Not Be Employed And Trade On The Side
Must Be The “Taxpayer’s” Primary Business Activity
Trading Activity Must Be Substantial, Frequent, Regular, And Continuous
Must Notify IRS Of Intent To Make Election By April 15th Of First Tax Year

9. Use The IRS Regs To Your Advantage
The IRS Reg’s. State That A Taxpayer Who Desires The Election Must File Paperwork At Both The Beginning And Ending Of The Tax Year To Comply With Election Procedures. Use This Requirement To Your Advantage.
Only Three Things Can Happen During The Tax year: Trading Profits, Losses, Or Neither
If You Have Significant Unused Capital Losses, Comply With Election Procedure Number One, To Keep Your Options Open, Decide At The End of The Year If You Actually Want The Election.
Decision Time: Why Not Wait Until The End Of The Year Utilizing The Benefit Of 20/20 Hindsight?!

10. Special Tax Rules For Futures Trading
Gains Taxed Based Upon a 60/40 LTCG, STCG Split
Losses Can Be Carried Back 3 Years Against Previous Taxed Gains
If No Previous Gains Reported, Losses Limited To $3,000 Per Year, Same As Capital Gain Treatment, Remainder Carry Forward

11. What If I Do Not Qualify? But Need The Election?
Forming A Business Entity Solves Many, If Not All Of The Problems Individuals May Have Qualifying, As Well As Providing Additional Tax Benefits, But They’re Not Needed Or Required By Everyone. They Cost Money To Establish & Maintain, Trading Fees May Increase, And They Add A Level Of Complexity To Your Life, That Some Find Undesirable.

12. Common Types Of Business Entities
Sole Proprietorship (Unincorporated)
Subchapter S Corporation
L.L.C’s & L.L.P’s
C Corporation
Combination Of Above

13. Sole Proprietorship
For The Individual Who Trades Frequently and Otherwise Qualifies For Mark To Market election
Does Not Need Other Benefits Provided By Incorporating
Reports Expenses On Schedule C, Trades On Schedule D or Form 4797 (Form 6781 For Futures)
Can Not Fund Retirement Accounts, Or Deduct Health Insurance As A Business Expense

14. Subchapter S Corporation
Recommended For Most Traders Who Do Not Have Pooled Accounts And Need To Incorporate.
Deductible Benefits Including Health Insurance
Establish & Fund Retirement Plans Up To $41K Per Year.
Qualify For The Mark To Market Election Even If Employed. Trading Can Be The Entity’s Primary Business Activity.
Qualify For The Mark To Market Election After April 15th.
Don’t Classify Yourself As A Trader, Removes All Trading Activity From Your Personal Tax Return

15. Limited Liability Companies (L.L.C’s & P.’s)
Perfect For Pooled Capital Accounts
Allows Special Allocation of Profits/Losses
Requires At Least Two Partners To Be Recognized As Legitimate By The IRS
Deductible Benefits For Active Partners
Qualify For The Mark To Market Election After April 15th.
Don’t Classify Yourself As A Trader, Removes All Trading Activity From Your Personal Tax Return

16. C Corporation Not Recommended As A Stand Alone Entity
Capital Losses Only Deductible Against Capital Gains
No Current Benefit From Trading Losses And Expenses, Even With The Mark To Market Election
Trading Gains Will Be Taxed Twice, Unless Withdrawn as Salary, And Then Subject To Social Security Tax.
Do Not Trade Inside Of A C Corporation

17. Combination OF LLC & C Corp
Not Required Or Needed By Most Traders
Perfect For High Income Taxpayers & Very Successful Traders
Works Well When Utilizing Outside Capital
Provides For Deductibility of Benefits As In Other Entities
Expensive To Establish And Maintain
In Summary, Generally Not Necessary Except In Certain Circumstances

18. Retirement Plan Options Self Employed
Self Employed Plans Are Not Permitted For Unincorporated Traders In Securities Because The Limitations Are Calculated On Net Earnings From Self Employment
Married Individuals May Make IRA Or Roth Contributions Based Upon Spouses Earned Income, If You Otherwise Qualify

19. Retirement Plan Options-General 2004 & 2005 Funding Limits
INDIVIDUAL RETIREMENT ACCOUNTS
$3,000 and $4,000 With Catch Up Contributions of $500 if Age 50 or Older
You Or Spouse Must Have Earned Income
If Both Covered By Other Retirement Plan Then Ability To Claim A Deduction Phases Out Beginning at $65,000
If One, But Not Both Covered By Other Retirement Plan, The Ability To Claim A Deduction Phases Out At $150,000.
Contribution Must Be made By April 15th.

20. Retirement Plan Options-General 2004 & 2005 Funding Limits
ROTH IRA ACCOUNTS
$3,000 and $4,000 With Catch Up Contributions of $500 If Age 50 or Older
Single Income Limits of $95,000-$110,000
Married Joint Income Limits $150,000-$160,000
Rollover Limits, AGI Of $100,000 Or Less
5 year Holding Period For Withdrawals To Be Considered “Qualified-Tax Free”

21. Retirement Plan Options-General 2004 & 2005 Funding Limits
SEP-IRA 401(k) PLANS
Smaller of 25% Of Employee Compensation up to $41,000 and $42,000 Respectively.
Plan Can Be Established After The Tax Year Is Completed As Long As Funded By The Due Date Of The Corporate Return (including Extensions), Generally September 15th

22. Retirement Plan Options-General 2004 & 2005 Funding Limits
SIMPLE 401(k) Plans
Elective Deferrals Of 100% of Compensation up to $9,000 and $10,000 for 2004 and 2005 Respectively, With Employer Match of 3% Of Salary.
Plan Must Be Established Within The Tax Year,Generally Prior to October 1.

23. Retirement Plan Options-General 2004 & 2005 Funding Limits
Defined Contribution 401-(k)
Elective Deferrals of $13,000 & $14,000 With Catch Up Of $3000 & $4,000
Employer Match of up to 25% Of Employee Compensation, With Total “Additions” Not To Exceed $41,000 and $42,000 Respectively Inclusive Of Employee Elective Deferrals.
Plan Must Be Established Within The Tax Year
Plan Loans up to $50K, & Hardship Distributions At Age 59.5 Allowed

24. DAYTRADERTAX. COM a division of Mann & Company CPA’s P. C
DAYTRADERTAX.COM a division of Mann & Company CPA’s P.C. (303)
This presentation is intended to be an overview of existing tax law applicable to active traders at the time of its presentation. It is not intended to be comprehensive tax advice and we recommend that you consult your tax professional for additional information concerning the impact of certain tax strategies discussed, as it relates to your personal tax situation.