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Strategies & Market Trends : The Final Frontier - Online Remote Trading -- Ignore unavailable to you. Want to Upgrade?

To: steve goldman who wrote (3447)	3/17/1998 6:13:00 PM
From: TFF	Read Replies (1) \| Respond to of 12617

Not a bear to be found in the midst of warnings from chips,pc's and networkers......THIS MARKET IS TOAST!!...

To: steve goldman who wrote (3447)	3/21/1998 3:10:00 PM
From: Robert A. Green, CPA	Read Replies (1) \| Respond to of 12617

TRADER TAX RULES & TAX RETURN REPORTING GUIDE - EDITION 2 Benefits of Trader versus Investor tax treatment "Traders" are not treated as "investors" or as "dealers." They have special hybrid treatment under the IRS tax code. 1. Investors can not deduct more than $3,000 of net capital losses in any given tax year. Traders may deduct an unlimited amount of year-end unrealized losses as ordinary losses. ú One very important reason to choose the trader tax treatment is if you had a significant amount of "unrealized" losses at year-end December 31, 1997. U.S. and global securities markets declined in the 4th quarter of 1997 and many traders incurred unrealized losses. The new tax law of 1997 included a very important change for traders. The new law states that, "for tax years ending after August 5, 1997, traders in securities or traders in commodities may elect the same mark-to-market treatment that applies to dealers in securities, except that a trader does not maintain an inventory that must be marked to market." According to RIA (see below in bold), "the trader recognizes gain or loss on any security held in connection with the trade or business at the close of any tax year as if the security were sold for its fair market value on the last business day of the tax year, and (Code Sec. 475(f)(1)(A)(i)) any gain or loss is taken into account for the tax year. Any gain or loss recognized by an electing taxpayer is ordinary gain or loss. 2. Investors can deduct limited amounts of investment expenses and interest expenses. Traders can deduct unlimited amounts of trading expenses and interest expenses. 3. Investors receive long-term capital gains tax rate treatment. Traders also receive long-term capital gains tax rate treatment. 4. Investors are not subject to self-employment taxes on capital gains. Traders are also not subject to self-employment taxes on capital gains. 5. Investors and Traders are both subject to the wash sale rules. 6. The IRS rules listed below are clear in subjective terms but not clear in objective terms. The tax courts have issued many ruling over the years that frame the objective tests. We strongly feel recent advances in the Internet and on-line trading brokerage firms have made the trader business much easier to operate. There are now over 4 million on-line trading accounts in the U.S. and many of these traders are very active in the business of trading in securities. Some of these active traders may qualify for the "trader" tax treatment and it could be very advantageous to them under certain conditions. Tax Forms Guide for Traders versus Investors 1. Traders and Investors both use Schedule D to report all capital gains and losses on "realized" sales of securities during the tax year. 2. Traders may report their year-end "unrealized" gains and losses on Schedule D. You would probably choose this option if you have unrealized losses. Those unrealized losses reduce your realized capital gains. If your net capital loss exceeds the $3,000 limitation, then you may report the excess unrealized losses on Schedule C. We suggest you explain this treatment on your tax return in a memo. ú This area of the tax code is a little unclear, as you can see from the below research. Don't quote this guide in your tax return memo. If you would like our help you must call us for your own tax return case. We are not responsible to you or the IRS for this guide and advice, unless you engage and pay us for specific tax advice for your specific tax return. 3. Investors report investment expenses on Schedule A subject to investment interest expense restrictions and miscellaneous investment expense limitations and restrictions. Traders report all trading business expenses on Schedule C. By reporting realized capital gains and losses on Schedule D, and trading expenses and excess unrealized trading losses on Schedule C, your Schedule C shows a net loss. This can invite IRS questions about "hobby losses" (see end of this guide) and why is the taxpayer entitled to this loss, which provides tax savings. ú The way to solve this matter is to explain in your memo that you are a Trader in Securities with your realized capital gains and losses reported on Schedule D by law and your trading expenses and excess unrealized losses reported on Schedule C by law. After you combine your Trader gains, losses and expenses from both Schedules D and C you show that you are not subject to hobby loss rules as follows. ú There are two ways to avoid the hobby loss rules. The first way is to show a profit in at least three out of five consecutive years (two out of seven years for breeding, training, showing, or racing horses). The second way is to run the venture in such a way as to show that you intend to turn it into a profit-maker, rather than operate it as a mere hobby. The IRS regs themselves say that the hobby loss rules won't apply if the facts and circumstances show that you have a profit-making objective. A serious on-line trading business is not a hobby. 4. Both investors and traders with many transactions during the year may instead of reporting every trade during the year, use one line item for each holding period - example, "eSchwab - nominee (detail of trades available on request)." Make sure to reconcile to the net sales proceeds reported on Form 1099 from your broker and then use the correct cost basis to arrive at the correct calculation of gain or loss. You may use computer worksheets to calculate your gains and losses per holding period. Don't forget to apply the wash sale rules (see end of this guide). If you would like to order the entire 26-page tax guide, send your check in the amount of $25 to Green & Company, Inc., 415 East 37th Street, New York, NY 10016. For quick delivery just email your order to rgreen@greencompany.com For all orders received by March 30, 1998, you receive a free 15-minute consultation with Robert Green, CPA after your payment is received for the tax guide.