Taxes (TAX)

[ypsiCPA]

Expense can only be taken on business portion (ie if you claim 80% business use, section 179 expense = 80% of the cost). 100% business use might be questioned, especially if another computer isn't available for personal use.

[cintrix]

Oh the way it was worded I thought maybe they were giving some kind of write off the same as with a new car. That depreciation for computers...I have heard it is a red flag if you take it. I think you have to prove that the computer is used for business purposes only - kind of like the home office deduction, no?

[ypsiCPA]

Net deduction would be $500. The $200 is lost.

Yes, DAS would be a 2% deduction.

[ypsiCPA]

No tax credit for a computer. But section 179 expense is available, as is 50% bonus depreciation on portion not expensed.

If you buy a computer this year, you don't have to decide whether to take 179 expense or bonus depreciation until you prepare your return.

[omegahpla]

So, just to be clear, in that scenario you could deduct $500 or $200 from adjusted gross to go against/reduce total net income? You take the $700 and you can only deduct $200 so the remaining $500 isn't deductible?

Another question springs from this. I had a slow month and the broker charged me $150 that month to use the DAS trader system. That would go as a general trading expense? The 2% type?

[cintrix]

Steve, check out this article about section 179 - specifically the line about "owners might want to consider buying, for example, computers or vehicles before Dec 31" - I knew there was some tax credit for buying a new car, but a computer? Take a look:

Never too late: Still time for 2009 tax planning
December 23, 2009 by The Associated Press / JOYCE M. ROSENBERG (AP Business Writer)
NEW YORK (AP) — Although there are just a few days left in 2009, small business owners still have time to squeeze in a few tax breaks.

Making a last-minute equipment purchase or paying your estimated state taxes early can shave some money off your bill. A retirement plan contribution can also help.

But before you start spending to beat the Dec. 31 deadline, remember the mantra of accountants and other tax professionals: Don't take these steps just to save on your tax bill. They have to make good business sense overall.


You also shouldn't be thinking about 2009 alone. Tax planning needs to be a forward- and backward-looking process. You need to consider if you're going to be making more money next year. Or, if you're likely to suffer a loss for this year, should you be carrying losses back to 2008 or even 2007?

Gordon Spoor, a certified public accountant in St. Petersburg, Fla., said income, deductions and tax years "all have to be looked at together. None can be looked at in isolation."

ACCELERATE YOUR DEDUCTIONS — MAYBE

To increase their deductions, many owners might want to consider buying, for example, computers or vehicles before Dec. 31. That will allow them to take advantage of the Section 179 deduction for new equipment purchases.

But you need to keep an eye on the improving economy.

"If you think you're going to be in a higher tax bracket next year, maybe you want to save those deductions," said Gregg Wind, a CPA with Wind Bremer Hockenberg LLP in Los Angeles.

Spoor said owners should have a good sense of whether their companies are likely to show a profit for 2009 before taking any more deductions. He warned that taking too many deductions could have unintended consequences. If they end up with a loss, they might not be able to benefit from other deductions such as the one for health insurance for the self-employed.

"Do not back yourself into a corner, " Spoor said.

Of course, if your PC is on its last legs, then it's a sound business decision to replace it now.

Owners need to be aware of some caveats with the Section 179 deduction, named for an Internal Revenue Code provision and which allows for equipment to be deducted up-front rather than depreciated over time.

Equipment must be delivered and placed in service by Dec. 31, so big, custom-built equipment such as manufacturing machinery is unlikely to be eligible. And heating and air conditioning systems, which are considered parts of a structure, are not covered under this section, although they can be deducted through depreciation rules.

You don't have to pay for the equipment this year. As long as it's up and running by Dec. 31, you can deduct it.

RETIREMENT PLANS

If you can make a retirement plan contribution by the end of the year, you probably should do so. Most tax professionals and financial advisers will recommend that small business owners fund their plans not just for the deduction, but because it's always better to start saving now rather than later. While no one can predict the course of the stock market and interest rates are still very low, the pros believe investing now is always the best course.

Owners who have the retirement plans known as SEPs, short for Simplified Employee Pension, or SIMPLEs, short for Savings Incentive Match Plan for Employees, have more leeway to make their 2009 contributions. They don't have to place money in employees' accounts until the due date of their returns, including extensions. That could be as late as next Oct. 15.

Again, the sooner the contributions are made, the sooner employees can start to benefit from their investments.

SHOULD YOU PAY YOUR STATE TAX NOW?

Paying your estimated state taxes by Dec. 31 instead of the Jan. 15 deadline will allow you to deduct them on your 2009 federal tax return. But, like any other deductions, you need to think carefully before you write the check.

Wind noted that owners in states with high income taxes could end up paying more tax by accelerating this deduction. They could find themselves subject to the Alternative Minimum Tax, which targets taxpayers with very high deductions.

It may make sense to save that deduction for next year.

MAKE YOUR INVENTORY PAY OFF

Wind noted that companies with excess inventory still have a chance to lower their taxes by doing one of two things: giving it to a charitable organization or writing it off.

"If your inventory hasn't moved for a while, think of donating it," Wind said, noting that companies should deduct the cost-basis of the inventory. Anything that can be used by a school or group considered a qualified charitable organization by the IRS can be deducted.

"If it's worthless inventory, or stale, just write it off," Wind said.

Might be time for a trip through your warehouse in the last days of the year — it may help you get some tax savings.

[omegahpla]

Seems smart not to give the IRS any gaps. I've seen what they do to people over those. Not me, but good honest people who just didn't have everything nailed down. As if the tax laws were actually intelligible.

[ypsiCPA]

If your adjusted gross income is $10,000, 2% of it is $200. So if you spent $700, deduction is $500 (700 - 200).

No, broker charged wire fees don't adjust stock basis.

[omegahpla]

So if you spend $700 on wire fees, stockcharts, and other things, you only get to deduct $14? lol, that's lame.

Broker fees do come directly off the basis right? Just so I know I have that strait?

What about Broker charged wire fees?

[cintrix]

lol I get trade confirmations everyday from both of my brokers. What I do is print each day's trade and enter it each morning into Quicken. Some may think that is too much paper, but for me I just put the completed trades (buy and sell confirmations) in a pile and put them away with my tax returns for that year. This way if I were every audited, I have back up for every trade I made.

[omegahpla]

The brokers are supposed to send me accounting right? That should work to back up the information. If I ever get audited I plan on starting a national revolt to guillotine everyone in the Federal Government anyway, so it would be the least of my worries

... joke : )

[cintrix]

Oh, ok. lol I was going to say "what have I been wasting my time all these years keeping a Quicken on every trade I made?"

[ypsiCPA]

Absolutely he should keep the records

[cintrix]

Whoa, wait a minute here. That is what he needs to put on his Scd D, but what if he were every audited? He still needs to have all his transactions backed up by some kind of an Excel or Quicken scd along with trade confirmations to back up what he put on his D, doesn't he?

[ypsiCPA]

Investment expenses are a 2% miscellaneous itemized deduction; all those deductions are totaled, then 2% of adjusted gross income is subtracted. Anything left increases itemized deductions.

you're welcome

[omegahpla]

So if I itemize in general for other income, I should be able to itemize for investment income also, correct? Or are they separated?
(I get not to put Real Estate Income and Investment Income on the same form).

I won't need to worry about itemization much this year lol, low income, but I was worried about capitol gains on a few hundred bucks I made, not counting expenses, knocking the refund total down by a hundred or two.

I can probably hash a lot of the rest of this out on Turbo Tax though. Now that you have me basically understanding the ins and outs. I guess the cheap one probably won't work this year though.

Thank You Much ypsiCPA ... you've saved me significant stress, and probably a certain amount of insanity : )

[ypsiCPA]

If you have a Schedule C for your realtor business, expenses related to that go there. But investment expenses will go on Schedule A - don't put on your realtor Schedule C!

No, wire transfer fees are not an adjustment to basis. Generally your basis will be the net on the purchase confirmation.

[ypsiCPA]

Report the stock transactions on your tax return. Otherwise IRS will get the 1099-B's, assume your cost was zero, and send you a bill (yes you can get out of it, but much easier to avoid it in the first place). Also if you have a loss for the year, you can offset up to $3000 of other income.

E-filing (available thru Turbotax or Taxcut) will speed up your refund, as will direct deposit.

[omegahpla]

So you can be an armature trader (not pro, which is a distinction the IRS people asked me about) and still Itemize if you itemize from another profession? Wouldn't direct costs like wire fees come off the basis anyway? like broker fees?

[omegahpla]

Since I made no profit over all, would it be smart to do taxes simply without reporting trading transactions, and then later send amendments? If I have to wait for the forms from the Broker?

I'm in pretty deep dodo financially, and I could use the refund asap.

AND if you ever have a question on real estate, construction, or creative finance I'd be more than happy to tell you anything I know. I'm a Realtor, also I got caught bad in a project because my partner went stupid / greedy, thus the temporary financial Armageddon lol.

[ypsiCPA]

You don't need to wait for the 1099-B's. Go ahead and file without them; once they arrive check against your return (if you messed up, either amend or wait to hear from IRS).

All those deductions will only help if you itemize deductions.

And yes, you can use Turbotax or Taxcut.

[omegahpla]

Can this all be done (the stock transaction accounting for 1040) on Turbo Tax or Tax Cut?

[omegahpla]

OMG Really? I love you man! Thanks : )

That's how I thought it should go, but the IRS people really confuse things.

Do I have to wait for the 1099B's to file? Or can I send the totals on another form and file ahead of them? I am at a net loss, assuming I can deduct Stockcharts.com, ihub, wire fees, and all that, though I had a good gain with Scott, and then a Loss with Harmon (mostly because Harmon would not fill the dang orders reliably on semi lower volume stuff, and I got stuck bad on fast PPS movers).

[ypsiCPA]

Since all your trades were short-term, and you're not dealing with wash sales, only two lines are needed on your Schedule D, Line 1:

col a: Scottrade
col b: Various
col c: Various
col d: Total proceeds from Scottrade
col e: Total cost of Scottrade stocks

col a: Harmon
col b: Various
col c: Various
col d: Total proceeds from Harmon
col e: Total cost of Harmon stocks

column d amounts should match total proceeds on 1099-B's you'll get from brokers.

Deductions not related to particular trades are likely investment expenses (reported on Schedule A, Line 23) - except investment interest expense, which goes on Form 4952.

[omegahpla]

Wow that was quick, thanks : ).

Yes, I have detailed gains and losses. I have all the info to account for the totals on everything, it's just what to put in the forms and how to show it, I have a problem with.

Are you saying I don't have to report every transaction on one stock?

Do I need to report every total gain and loss per individual stock for the year?

... Or can I figure totals one each stock, add them all, and use those aggregated to a grand total, and work from that?

The deduction on tools and other expenses that factor in to the total, but not into the individual stock profit and loss, how do you go about deducting those things?

Can you do this stuff on Turbo Tax or Tax Cut?

I don't have any accounting programs and I really can't afford them, and I don't know how to use them.

*Extraneous Whining
I'm sorry, I'm actually a genius by IQ score, but I'm a total idiot when it comes to putting things in what I see as nonsensical formats. Why not just a line by line p&l, an aggregate total, then work from there?

[ypsiCPA]

omegahpla, it would be easiest if you can get help from the brokers. Is there info available online that would detail your gains and losses? (If you can download transactions to Excel, that would be easier to work with than paper records).

If you're doing it yourself, shares sold go with the first shares bought (unless you directed broker otherwise). While you don't need to report each transaction on your tax return, you will need the detail to come up with totals.

[omegahpla]

I am lost in all the IRS info. It's my first year trading and I made hundreds of individual transactions, switched from Scott Trade to Harmon. Made a good bit with Scott Trade, lost with Harmon back down to a little lower than the break even point after calculating broker fees, wire fees, stockcharts, ihub fees.

I sold everything out and cashed out in November, so nothing is outstanding, which I did in part attempting to make tax prep easier (and because things were getting strange and I was losing in stead of winning) but I doubt it worked.

I called the IRS and I still have to report each and all individual transactions I guess, but they don't even have a good grip on exactly how to account it all and what forms, aside from reading pubs 550 and 554.

I bought and played with some individual stocks, buying, selling, buying ... I don't know which buys exactly I sold when, seems impossible to track without some kind of aggregate accounting process.

I don't even understand how to aggregate the totals of all this stuff so certain deductions (like stockcharts and wire fees) can be taken on the total and not attributed to a particular (buy to sell) transaction.

I'd love to know how to get a grip on this thing so I would know how they want me to report it. I wish I could hire an accountant, but I made next to nothing this year and I can't even afford to pay attention : (

I have all my numbers, I can account for everything, but transition into IRS syntax is mind boggling.

I want to file quickly this year because I would get a refund, and it's seriously needed. Harmon said they don't get forms out until some time in February.

Help would be hugely appreciated

[cintrix]

The rule here is so confusing that even the IRS seems to get mixed up in Publication 550.

Too funny. Nobody quite understands it. lol

BTW, this explains the last day to sell a stock - long vs. short:

Trade date controls

When determining what year you sold your stock, the trade date is what matters. This is the day the transaction took place on the stock exchange. If you contact your broker on the last trading day of the year, you can complete a sale in the current year if your broker executes the trade that day. On major exchanges, the last trading day is December 31 unless that day falls on a weekend.
Settlement date

Stock market trades generally settle a few days after the trade date. This is the day shares and cash actually change hands. But the settlement date doesn't matter for purposes of determining when your sale took place. If your trade date is in the current year and your settlement date is in the following year, the tax law says you made the sale in the current year (year of the trade date).
Different rule for short sales

If you're closing a short sale, any loss you have on the closing transaction is treated as if it occurs on the settlement date, not the trade date. That's because delivery is generally the event that closes a short sale. If you need to report a loss from a short sale in the current year, be sure to act early enough so the transaction settles by December 31.

What about gains from short sales? A June 2002 ruling from the IRS says the constructive sale rule applies when you close a short sale at a gain. That's because for the few days between the trade date (when you're treated as having bought the replacement shares) and the settlement date (when your short sale is actually closed) you're long and short the same stock. That means you have to report gains from short sales on the trade date, not the settlement date.

[ypsiCPA]

Short Sales and the Wash Sale Rule

The wash sale rule prevents you from deducting a loss from selling stock if you acquire replacement stock shortly before or after the sale. The rule here is so confusing that even the IRS seems to get mixed up in Publication 550.

Much more at http://www.fairmark.com/capgain/wash/wsshort.htm

[Choi]

Thanks man, appreciate it....

[ypsiCPA]

Up to $3000 of capital losses can offset other income ($1500 if married filing separately). Losses above that are available next year: capital gains are offset without limit, and up to $3000 of other income.

[Choi]

I need help with this....So what happens if you lost over $3,000? Thats the amount I lost...

[jglider]

OK that's what I thought. Thanks for the info as that's how I'm going to report it.

Some software programs try to show a wash due to the second buyin I think..

[ypsiCPA]

If those are the only three transactions in XYZ, you get the whole loss. Buying shares back by December 1 would subject the November 1 loss to the wash sale rules.

[jglider]

Good stuff on this site but have an unusual issue.

Bot 50 shares XYZ for 50 each on Aug. 10
Bot 50 shares XYZ for 49 each on Aug. 11

Sold 100 shares for 45 each on Nov. 1.

Does the wash rule effect me or can I take the whole loss?

These are all shorting index funds if it matters.

[cintrix]

Well, I am assuming that the IRS doesn't believe most people's Scd D if they are serious about adding this new feature. What they should do then is force the brokers to provide a sch D for the year that includes past purchases from years ago. The only problem with that is if you bought something through another broker -there still would be no way for the present broker to know exactly what you are selling those positions against. They should just squash the whole idea, imo. If I were dictator of this country I wouldn't allow it! lol

[ypsiCPA]

Guessing here (new 1099-B is still "proposed"): For 2011 you're correct. For 2012 basis will be reported for December 2011 purchase.

There's a checkbox for "noncovered security"; that may be for when not all basis info is there.

[cintrix]

Basis of stock purchased before 2011 isn't required to be included.

Then what is the point? Why do they need to put this on a 1099? If the basis that a good portion of taxpayers will show will not be the actual basis reported on their returns, I can't see their reasoning. Is there going to be a new line on the actual tax return for the current year basis? I mean we could buy something on the 31st, sell it two weeks later - it would still be a short term transaction, but the basis would not be reported in the next year the way they are doing this. I am just not understanding their reasoning.

[ypsiCPA]

Basis of stock purchased before 2011 isn't required to be included. So they're starting with a large hole that will shrink over time. While many iHubbers seldom hold stock long-term, many outside do (Client: I bought this around 20 years ago, and have no idea what I paid. Will be more of a pain as more dump what was bluechip General Motors.)

I prefer to keep track myself, helps with tax planning.

[cintrix]

That form has me believing that the brokers come 2011 will have to give us a Sch D - if they have to report basis, proceeds, wash sales, then that's a Sch D. Does that mean we won't have to use Quicken or Gainskeeper anymore?

[ypsiCPA]

I think they want basis of stock sold during the year, not basis of open positions.

[trader guy]

That's gonna hurt.

[rsqfyrmedic]

Yes, long. Thanks for asking.

[cintrix]

That is a long position you are referring to, right? Rules for short sales are different.

[rsqfyrmedic]

Thanks, big help.
Happy Holidays and New Year!

[cintrix]

You have until the last day of the year. It is the trade date that counts not the settlement.

[rsqfyrmedic]

Morning all; great board. Question; to realize a loss for this year do you have to sell by the COM the 31st or sometime prior?
TIA

[cintrix]

That is going to be crazy. Why does the govt need to know your basis buying for the year? If you don't sell it in that same year you aren't supposed to report it.

[ypsiCPA]

Coming in 2011

Check out the draft 1099-B: http://www.irs.gov/pub/irs-dft/f1099b--dft.pdf

[cintrix]

Quicken should be ashamed of themselves that they still haven't figured out a way to calculate wash sales by now.