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Professional “Trader Tax Status”/IRS Topic 429 - LSUFanHouston or other CPAs
Posted on 9/15/23 at 3:07 pm
Posted on 9/15/23 at 3:07 pm
My current CPA is very competent on real estate and most other tax related issues. But in TY2024, we’ll be going into new territory for both of us. With my retirement from full-time employment in TY2023, I’ll be able to qualify, with my index options business, for professional Trader Tax Status under Topic 429 next tax year. So just a broad question for any of you who may have dealt with this topic for your clients, especially how they recorded the (daily?) mark-to-market requirements?
Any pointers or advice would be welcomed and appreciated.
Any pointers or advice would be welcomed and appreciated.
2
Posted on 9/15/23 at 9:30 pm to Jag_Warrior
Assuming you have already filed or comfortable with the process of filing your 475(f)election, google mark to market accounting for guidance. There is a wealth knowledge to be found on the subject. This article explains as well as I could.
LINK
LINK
This post was edited on 9/15/23 at 10:07 pm
Posted on 9/16/23 at 9:08 am to CHGAR
Thanks for that.
Posted on 9/16/23 at 4:02 pm to Jag_Warrior
So I don't take on any clients who believe they qualify, and I have let clients go who insist they qualify. This is mainly because in my experience, they aren't really doing it to the level and committment that is required, as well as they typically have a risk level that doesn't match mine. (i.e. they constantly push aggressive tax strategies that don't align with what I agree with)
But the benefits are writing off investment expenses and not being subject to the wash sale rule. Yes, you can also take losses without limitation... but if you are constantly having to write off larger losses... maybe day trading isn't a good idea for you!!
But the benefits are writing off investment expenses and not being subject to the wash sale rule. Yes, you can also take losses without limitation... but if you are constantly having to write off larger losses... maybe day trading isn't a good idea for you!!
Posted on 9/16/23 at 7:25 pm to LSUFanHouston
I appreciate that, LSUFanHouston. But with my retirement from full time W2 employment in TY2023, assuming that I maintain or even increase my level of index options activities going forward, it’s not really a question of whether or not I would qualify as a trader, rather than an investor (under current IRS rules). To be more specific, my question has more to do with proper and acceptable mark-to-market recording. Sorry for not being more specific.
Posted on 12/12/23 at 10:28 am to Jag_Warrior
For any here who have a need for some guidance or have further questions about Trader Tax Status, mark-to-market record keeping, etc., one gentleman I met at the investors conference in Orlando is Charles Dombek. He/his firm will work with your current CPA, if need be, or his firm will take over those duties if you don’t believe that your person is able or willing to perform the necessary duties to keep you legal.
I’m not here to recommend him, but thus far, I’m pleased with his services. But do your own due diligence on him, or whomever you choose… ask the questions and voice whatever concerns that are applicable to your own situation.
Good luck.
I’m not here to recommend him, but thus far, I’m pleased with his services. But do your own due diligence on him, or whomever you choose… ask the questions and voice whatever concerns that are applicable to your own situation.
Good luck.
Posted on 12/12/23 at 11:32 am to Jag_Warrior
Perfect, thanks for the follow up!
Posted on 12/13/23 at 10:07 pm to BourbonDad
90%+ of the profits in my trading account this year will be from SPX options. Here’s something that may be of interest to those of you who may also have taxable profits from index/non-equity options.
Non-equity options taxation Internal Revenue Code section 1256 requires options contracts on futures, commodities, currencies and broad-based equity indices to be taxed at a 60/40 split between the long and short term capital gains rates.
***This rule means the taxation of profits and losses from non-equity options are not affected by how long you hold them.***
Section 1256 options are always taxed as follows: 60% of the gain or loss is taxed at the long-term capital tax rates 40% of the gain or loss is taxed at the short-term capital tax rates.
Non-equity options taxation Internal Revenue Code section 1256 requires options contracts on futures, commodities, currencies and broad-based equity indices to be taxed at a 60/40 split between the long and short term capital gains rates.
***This rule means the taxation of profits and losses from non-equity options are not affected by how long you hold them.***
Section 1256 options are always taxed as follows: 60% of the gain or loss is taxed at the long-term capital tax rates 40% of the gain or loss is taxed at the short-term capital tax rates.
Posted on 12/14/23 at 8:28 am to Jag_Warrior
Some more reading material for my fellow options traders (***note that SPY isn’t thus far considered to be a 1256/non-equity product since it’s an ETF):
In addition to the 60/40 split rule, if you hold section 1256 options contracts through the end of a calendar year and into the new year, you'll be required to recognize an unrealized gain or loss for each year based on the fair market value on Dec. 31. This is known as the marked-to-market rule, and it applies even if you don't sell that option. This activity also resets your cost basis (higher or lower) for the next calendar year. In addition, section 1256 contracts are not subject to the same wash sale rules as equity options.
In addition to the 60/40 split rule, if you hold section 1256 options contracts through the end of a calendar year and into the new year, you'll be required to recognize an unrealized gain or loss for each year based on the fair market value on Dec. 31. This is known as the marked-to-market rule, and it applies even if you don't sell that option. This activity also resets your cost basis (higher or lower) for the next calendar year. In addition, section 1256 contracts are not subject to the same wash sale rules as equity options.
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