Tax issues for United States

[TinGull 10]

Hi there,

 

Just curious as to those of you in the US who trade futures ONLY do your taxes by yourself or have someone else do them? And...how much does it usually cost to have someone do them for you? I've only been trading as a business since September and have maybe 60 trades to account for under that. Is it worth having someone else do it so it doesnt get messed up?

 

Thanks all!

 

Chris

[MrPaul 10]

I would shop around and compare accountant rates. For 06' your prolly just fine, but in 2007 you may want someone who can maximize your deductions etc.

[TinGull 10]

Cool. I figure I prolly won't get audited for 3 months worth of trading...

 

You recommend doing a hometown accountant? Or something like a big box H&R Block or something?

[MrPaul 10]

Cool. I figure I prolly won't get audited for 3 months worth of trading...

 

You recommend doing a hometown accountant? Or something like a big box H&R Block or something?

 

I use a local guy, he's not a powerhouse or anything but he's smart and really good at what he does. I used turbotax and him to compare he maximized my deductions and got me 2.5x what turbo tax estimated.

[TinGull 10]

Nice. Did you find him by looking for someone that specialized in trader taxes?

[rock 10]

My experiences with H&R are not good. High standard fees for a mediocre return. My dad used to handle a lot of tax returns for various organizations and he had to leave a local cpa due to performance issues. I did some fishing and found a great local cpa who dishes out advice. I've never meet an accountant who could offer any advice at a place like H&R.

 

I guess like most things you have to spot out the quality accountant to suit your needs whether its at an H&R Block or whatever.

[Guest cooter]

It's a blended US tax rate of 23% regardless of amount earned, plus state taxes, for futures traders.

 

Another reason to consider moving to Florida when you get really good at it (no state taxes).

 

More info: CBOT - Taxes for Active Futures Traders

 

It's a recent 2007 seminar on Taxes for Futures Traders, by tax accountant Robert Green.

 

Slides are here: http://www.cbot.com/cbot/docs/80257.pdf

 

And for those who don't want to register for the event, to view it try this link here:

 

http://mediasrv1.cbot.com/02062007_green

 

Or follow the instructions at this link here if that doesn't work out for you:

 

http://www.traderslaboratory.com/forums/f30/cbot-video-archives-924.html#post10827

 

-cooter

[brownsfan019 17]

tin - I would not touch your H&R Block, Jackson Hewitt's, etc. out there. They are not going to know a thing about futures taxes. Odds are you know more than they do.

 

My opinion is that if you want the best tax treatment, you need to find the best. If you want local, get on google and see what's near you. For me, there are some major tax firms that are 'local' so I started there - Ernst and Young, etc. - firms like that.

 

If you can find a local guy that knows what he's doing, great!! Just keep in mind that very few 'jack of all trades' cpa's out there deal with direct futures trades. It's just not common at all. I would put together a list of interview questions so you can screen some guys out. The most basic question - what is your understanding of how futures day trading is taxed? In other words Mr. CPA, if I hold a futures trade for 5 minutes and make money, how am I taxed?

 

... very basic question that anyone with a tad of knowledge about futures should be able to ask, but if they can't answer that, time to go. You'd be surprised how many assume that futures are just like stocks and therefore, you'd be taxed at all short-term gains on that trade. That is a VERY costly mistake obviously.

 

There's also some firms that are specifically built around traders, but probably not local to you. I would check them out as well. I've read good things about http://www.greencompany.com/ I cannot speak on their behalf, so do your own due diligence.

 

Taxes are a MAJOR consideration when running a profitable futures trading business. How your taxes are prepared can literally increase/decrease your final year-end P&L by thousands of dollars.

[Nick1984 10]

I can't speak directly about the US because your tax laws differ from ours in Australia but I know don't use H&R Block they suck the big one. I've paid them $150 bucks for a basic tax time deduction number crunch and they came up with $30 bucks of deductions once..... go figure.

 

In the USA if you conduct 30 round trip trader within a year do you get classified as a professional trader? Here in Aus if you do, then you get your tax rate capped at 30% and no medicare levy. Also your losses become tax deductible which is a bonus.

 

If there is a similar system in the US, then you can use your favourable taxation position to siphon off your excess profits and direct them into long term investments such as managed funds or shares which can produce tax effective income streams as well to further help reduce the overall volatilty of your income.

[Minis Trader 10]

You need a guy that knows his stuff. I have seen many traders get nailed from the IRS for poor records and deductions they could not take. I know one individual that made over 3000 trades in 9 months, he took the last 3 months of the year off for a reward and when filed his taxes he claimed "Trader Status" and it was denied. The guy made his entire income from trading, he did it more than any other activity but when he took 3 months off he didnt qualify.

 

It is best to get yourself structured (Nevada or Wyoming) and go from there.

Just make sure that the people you use to set you us and the accountant you use is a business accountant so you can take full advantage of the tax laws available to businesses in this country.

Later