Day Trading Resources

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What You Need to Know About Proposed “Green Book” Changes to the Tax Code

In late March, the Biden Administration released its budget recommendations for 2023, along with revenue proposals. These proposals were included in the Treasury Department’s General Explanation of the Administration’s Fiscal Year 2023 Review Proposals, which is more commonly known as the “Green Book.”

These proposals included changes to the tax code, which have not been approved yet, but could pass by the end of the year. Here are some of those proposed changes:

Corporate and International Taxation

One of the major proposed changes is to raise the corporate income tax rate from 21 to 28 percent. Other changes would include adopting the Undertaxed Profits Rule, expanding access to Retroactive Qualified Electing Fund Elections, providing incentives for locating jobs in the United States, removing tax deductions for shipping jobs overseas, expanding the definition of Foreign Business Entity to include taxable units, preventing basis shifting by related parties through partnerships and conforming the definition of control with a Corporate Affiliation Test.

Taxes For High-Income Earners

The Green Book also proposes some changes to the tax-rate for high-income earners. It would increase the top marginal tax rate to 39.6% on income over $450,000 for married couples filing a joint return, $400,000 for unmarried individuals, $425,000 on head of household filers and $225,000 for married individuals filing separately. After the fiscal year 2023, the thresholds would move with the Consumer Pricing Index.

Additionally, the proposal would tax long-term capital gains of more than $1 million at the ordinary tax rate of 37% and would impose a minimum tax of 20 percent on taxpayers with wealth that exceeds $100 million.

Estate and Gift Taxation

The Green Book proposal would include some changes to how certain trusts are taxed. For instance, it would treat transfers to and from grantor trusts as “recognition events”, making them taxable. It would also treat the payment of income taxes of a grantor trust as a gift for all trusts created after the date of enactment. Other related changes include limiting the duration of the generation-skipping transfer to two generations below the transferor and those beneficiaries who were alive at the creation of the trust, requiring more consistent valuation of promissory notes and broadening tax administration for trusts and descendant’s estates.

Closing Loopholes

One of the focuses of the Green Book proposals is to close some so-call “tax loopholes.” This would entail taxing carried interests as ordinary income, repealing the deferral of gain from like-kind real property exchanges, requiring 100% recapture of depreciation deductions as ordinary income for certain real property, limiting a partnership’s tax deduction in certain conservation easement transactions, limiting the use of donor funds to avoid private foundation payout requirements, extending the assessment period for certain qualified opportunity fund investors, establishing an untaxed income account regime for certain small insurance companies, expanding pro-rata interest expense disallowance for business-owned life insurance, correcting drafting errors regarding the taxation of insurance companies in the Tax Cuts and Jobs Act of 2017 and defining the term “ultimate purchaser” for the diesel fuel exportation purposes.

Tax Administration and Compliance

The 2022 green book proposal is also aimed at making some changes to tax administration and compliance. Some of these changes include enhancing the accuracy of tax information including potentially requiring electronic filing, extending the statute of limitations for listed transactions, imposing liability on shareholders to collect unpaid income taxes of certain corporations, permitting the carryover of a reduction in tax that exceeds a partnership’s tax liability, extending the statue of limitations for certain tax assessments to six years, requiring employers to withhold tax on failed, non-qualified deferred compensation plans, increasing the threshold for simplified foreign tax credit rules and reporting, addressing compliance in connection with tax responsibilities of ex-pats, among other changes.

Modernization

Another aim of the proposal is to modernize the tax rules, especially as they relate to digital assets. One such change would be to update the securities loan rules to include trading digital assets recorded on cryptographically secured distribution ledgers in certain cases. Other modernizations would include requiring certain taxpayers to report information about foreign digital asset accounts, amending mark-to-market rules for dealers and traders to include digital assets and requiring certain financial institutions to report the balance for all accounts maintained at a U.S. office and held by a foreign person.

Benefits Tax Administration

The Green Book proposal would make some changes regarding benefits tax administration. Those changes would include clarifying tax treatment of on-demand pay arrangements and of fixed indemnity health policies and updating the funding rules for post-retirement medical and life insurance benefits.

This is just a small sampling of the proposed Green Book changes which could soon become reality. If you’re wondering how this could affect you, Traders Accounting can offer you a tax analysis. This is especially recommended if you have an existing C-Corp and want to know if you should switch to an LLC or an S-Corp. The cost will be $200 for the hour. Give us a toll-free call at 800-938-9513 to learn more today!

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What You Need to Know About the Inflation Reduction Act

Recently, President Joe Biden signed the Inflation Reduction Act (IRA) into law. People from all walks of life are likely wondering what the IRA will mean for them and those who make their living trading are likely no different.

The name suggests, the act is designed to reduce the sky-high inflation rates the country has been dealing with, but whether it will succeed in that endeavor is still a matter of some dispute. What’s clear is there’s far more to its aims than just inflation reduction.

The IRA also seeks to alter the tax code for the wealthy, add clean energy jobs, lower certain health care costs and revitalize American manufacturing. The bill is long and features many moving parts, so here’s how it will impact a few key areas that may affect you:

Taxes

One of the aims of the IRA was to make it harder for corporations to avoid paying taxes. To accomplish this, the IRA institutes a minimum corporate tax rate of 15%, puts a 1% surcharge on corporate stock buybacks and gives more than $100 billion to the IRS. Additionally, the act makes further investments into taxpayer service with the goal of helping taxpayers with questions they need answered and identifying credits and benefits they’re entitled to.

Tax Credits

Another key aspect of the act is tax credits for people and businesses that employ certain clean energy practices. You can obtain these credits by investing in energy efficient homes and commercial buildings or by providing electric vehicle charging infrastructure.

Additional tax credits are available for companies that use American-made equipment for clean energy production. The IRA will provide clean energy tax credits for wind, nuclear, solar, clean hydrogen, clean fuels and carbon capture.

Wages

One of the secondary aims of the IRA was to provide incentives for creating union jobs that pay a competitive rate, especially in the clean energy industry. Bonus tax credits are available for businesses that pay prevailing wages and hire registered apprentices. The act also penalizes companies that promise to pay prevailing wages, but ultimately don’t. Workers who are owed those prevailing wages will receive the difference and interest.

Manufacturing

The IRA is partially aimed at revitalizing American manufacturing by building up the clean energy sector. The act incentives domestic production in technologies such as solar, wind, carbon capture and clean hydrogen in an effort to build a clean energy supply chain.

The act is also aimed at promoting the creation of high-paying union jobs in traditional energy communities. The aforementioned tax credits will increase 10% if the clean energy project in question is established in a town that previously relied on coal, oil and natural gas extraction, processing, transport and storage for a significant source of employment. Tax credits are also increased if the amount of American steel used in wind projects meets the domestic content threshold. Bonus credits will apply to employers pay prevailing wages and hire certified apprentices. These measures are aimed at ensuring that federal tax policy supports the creation of high-paying, skilled jobs.

Health Care Costs

Another goal of the IRA was to lower the cost of prescription drugs. The act phases in a cap for out-of-pocket costs and establishes a $35 cap for a month’s supply of insulin for Medicare recipients. Additionally, Medicare will now be able to negotiate prices for high-cost drugs. The IRA also extends the provisions of the Affordable Care Act through 2025.

What Does it Mean for Traders?

Most of the provisions of the IRA don’t directly affect day traders. If you and your spouse combine to make more than $400,000 annually, you might see a tax increase. Aside from that, traders will be more focused on how this new law affects other segments of the economy as that will impact the market and, thus, trading.

If you’re a day trader who would like to hear more about the IRA from a professional, Traders Accounting is offering an hour-long consult on the matter for $200. Call us today at 800-938-9513 if you want to learn more!

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What to Know About Taxes Before Structuring Your Trading Business

So, you’ve decided to make day trading your full-time career. If you’re truly prepared for the job, there are a lot of potential benefits to the choice you’ve made. You get to work from home, be your own boss and you have the opportunity to make a good deal of money.

But there are also some decisions you’ll have to make before you begin actively trading and some things you’ll have to know about taxes and how they work for day traders. This includes decisions you’ll have to make about how to structure your trading business. Here are some things to know about taxes for traders before you get started:

Trading vs. Investing

It’s important to know up front that just because you consider yourself a day trader does not mean the IRS will see things the same way. There are a few specific things they look at to determine if you’re more of a trader than a long-term investor. There are important tax ramifications to this distinction.

The difference, essentially, is that investors make their money from dividends, interest and capital appreciation while traders make theirs from daily stock movements. In simpler terms, it’s a long-term strategy vs. a short one. If you want to be considered a trader by the IRS, you have to be able to show you make trades regularly and have a substantial number of trades made. Important factors in helping the IRS determine your status will include the frequency and dollar amount of trades, how long you hold your positions, the amount of time devoted to trading and whether it’s the means by which you support yourself.

If you do meet the requirements, you’re going to have to decide how exactly you want to structure your business. There are a few choices available to you.

Sole Proprietorship

If you don’t set up a structure for your trading business, you will be considered a sole proprietorship. There are some tax benefits, but there are drawbacks as well. Essentially, there will be no financial difference between you as an individual and you as a trader. You will file only one tax return for all of your financial activity in a given year. This means that there is no legal separation between you and your business. You will be solely responsible for taxes owed, trading debts and other obligations.

Creating a Business Entity

Creating a business entity is more expensive and time-consuming up-front but can pay off in the long term. One of the biggest advantages to doing so is you’ll file separate tax returns for your business and yourself as an individual, even if you’re the only employee of the business. This allows the IRS a better look at the financials of your trading business, which can help you avoid headaches in the long term.

One type of business structure you can choose is an S corporation. The benefit of choosing this is it allows you to deduct your retirement plan contribution and health insurance from your taxes. Another option is forming a C-corporation. Under this structure, profits tend to come in the form of salary and dividends. The income from trading is taxable to the corporation, not the individual owner. These corporations offer greater flexibility, but also require more work.

Traders may also choose to form a limited liability company or LLC. As the name suggests, this can help shield you from personal liability. Trading businesses which have at least two members have the option to be taxed as an LLC partnership. Under this structure, the LLC files a tax return, but the income or loss from trading goes directly to the members and is reported on their individual tax returns.

If you’re a trader looking to turn your activities into a legal business entity but need help with structuring that business, Traders Accounting is here for you. We have three different business entity packages to choose from based on the needs of your business. Depending on the package, you’ll get such benefits as bookkeeping services, mark-to-market coaching, a home office deduction, free first-year federal and state tax returns and more. Call 800-938-9513 to learn more today.

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Why Traders Should Outsource Their Bookkeeping

Being an active trader is a busy job. You have to be laser-focused on your work throughout the day to make all the transaction you need to. You need to stay informed of the latest news and trends in the market to ensure that you’re buying and selling at the right time.

But you also need to keep accurate records throughout the year so that you’ll be fully ready when tax season rolls around. Good bookkeeping will ensure that all the relevant information and paperwork you need will be ready come tax time. The problem is it’s not easy to find the time to maintain those records over the course of the year. There are only so many hours in the day and you likely already spend many of them on your trading.

Not only that, but bookkeeping for an active trader can be very complex. Especially at the end of the year when pending’s and washsales need to be configured and accounted for.

We highly recommend outsourcing your bookkeeping to an accounting firm that handles taxes for traders. Here are some benefits to doing so:

Take Advantage of Tax Expertise

Even if you don’t find maintaining your own records to be too much of a burden, you still likely could use the tax expertise that comes with outsourcing your bookkeeping. The person or firm you hire will have a lot of valuable knowledge when tax season comes. Knowing what expenses to deduct is absolutely key to ensuring that you don’t pay any higher a tax bill than is necessary.

Tax and deduction rules can be complicated, especially for traders. For example, some expenses will require more than a receipt in order to be deductible. The Internal Revenue Service can be more strict with traders than other types of business expenses. In addition to handling all of this, a tax professional can help point out any potential expenses you didn’t think to originally include.

Save Time and Reduce Your Burden

Being a trader and not hiring an outside bookkeeping service means spending countless hours throughout the year trying to stay organized and still not being as efficient as you’d be with outside help. Why continue to manually deal with statements and paper receipts when a professional can handle all of that for you. This comes in handy not just during tax season, but all year round. If you’re audited by the IRS someday, you won’t have to wonder where all your old documents are or have to worry if you’ve kept all relevant files. A professional will have already taken care of that for you.

Stay on Top of Your Finances

The benefits of going with an outside bookkeeping service extend beyond just tax season. You’ll receive monthly financial reports so that you’ll always have a good understanding of where you stand at any given moment. You’ll have useful financial data throughout the year that will help you make the best possible decisions for your business. All of your financial information will be accurate, up-to-date and easily accessible.

Be a Better Trader

Let’s be honest: you have the career you do because you’re a good trader who understands the market, not because you’re good at keeping records. That should be your focus when you’re on the clock. The more time you spend trying to get organized or find a receipt here or research whether you can deduct a certain expense there is time there, the less time you’re spending doing your actual job. If you want to spend less time on record keeping, get a better tax return and have a better understanding of your finances, outsource your bookkeeping.

If you’re in the market for active trader bookkeeping, Traders Accounting is the first place to look. We will reconcile all your accounts to comply with IRS standards. We will consult with you to review financial reports and answer any questions. Your monthly financial update will include a balance sheet and income statement, as well as any other detailed reports that you need. Of course, our seamless tax preparation will also ensure you’re IRS compliant.

Call 800-938-9513 today to let us ease your burden.

 

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Should Traders Take the QBI Deduction?

If you’re a full-time trader working in the United States, you might have heard of the Qualified Business Income Deduction. This relatively new deduction has allowed certain business owners to save money on their taxes. You may be wondering if you qualify for the deduction. Here’s what you need to know:

What is the QBI?

The Qualified Business Income Deduction – also referred to as Section 199A – allows eligible taxpayers to deduct up to 20% of their qualified business income, 20% of their qualified real estate investment trust dividends and qualified publicly traded partnership income. This deduction was created by the 2017 Tax Cuts and Jobs Act.

According to the Internal Revenue Service, qualified business income is the “net amount of qualified items of income, gain deduction and loss from any qualified trade or business.” This can include partnerships, S corporations, sole proprietorships, and certain trusts.

Essentially, you are eligible for this deduction if you own what is known as a pass-through business, meaning your business is not on the hook for corporate income tax. Instead, your business reports its income on the individual tax returns of the owners and is taxed at an individual rate.

Who Doesn’t Qualify?

The list of who doesn’t qualify for this deduction is fairly extensive. Qualified business income does not include investment income, capital gains or losses, dividends, income earned from businesses outside the United States or interest income.

If your taxable income is higher than $429,800 while filing jointly or $214,900 while filing solo, you do not qualify. Additionally, any owner of a business that is a specified service trade or business can’t claim the deduction, no matter how much or little they earned in a given year. This includes, but is not limited to, the field of health, accounting, law, athletics, consulting, investment management and, yes, trading.

So, if you’re a full-time trader, don’t bother worrying about the QBI next time you file your taxes as you will not be granted the deduction. And if you need any assistance with your taxes, bookkeeping or any other accounting services in the future, Traders Accounting is here for you. Our tax professionals can help make a complicated process simple for you. Call 800-938-9513 to learn more today.

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What to do When Closing Your Business

A sign indicates that a business is closedShutting down your business can be tough emotionally. Maybe it’s something you’ve run for a longtime and you just don’t have the time for anymore. Or perhaps you had a dream that never really got off the ground.

Regardless of the situation, there are a few things you’re going to want to do when closing your business to ensure your finances and interests are protected. Here’s what you need to do if you plan on closing your business.

Make the Proper Cancelations

If you’re closing your business, you likely won’t need any registrations, permits or licenses anymore so be sure to cancel any of those you currently have. Also cancel your trade name, if you happen to have one, to help ensure your business identity is not stolen in the future, as this can cause major liability.

Dissolve Your Business

It’s important to legally dissolve your business in the state you originally opened it in. Failure to do so can lead to either fraud, unpaid taxes, unpaid annual reports, etc. all being due, in order to shut down the business at the state level. At the federal level, if a final return is not completed this will mean that your business will still legally have to file taxes, even if you’ve made no money. If you don’t file, you’ll be subject to penalties that can add up to more than $2,000 annually, depending on the entity.

Tie Up Loose Ends

Now that your business is closing, it’s time to resolve any outstanding financial obligations you may have. If the business owes any money to investors, employees or anyone else, now is the time to make those payments. File your income tax returns for your final year in business, inform your state and federal tax agencies that you’ll no longer be in business and cancel your employee identification number. There is a very specific way you need to shut your business down and there are time frames that you must adhere to. Please feel free to reach out to us at Traders Accounting if you need assistance with this.

If you’re considering closing your business and feel overwhelmed by the various responsibilities, Traders Accounting is here for you. Our professional staff can help ensure that you’ve got everything covered before you shut down. Call 800-938-9513 to learn more about how we can help you today.

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Do You Have to Pay Taxes on Bitcoin and Crypto?

Bitcoin and cryptocurrency in general have exploded in popularity over the past few years. Millions of Americans have bought, sold and used cryptocurrency for a variety of purposes.

Those who are new to the crypto world might wonder whether there are any tax implications to buying, selling and using Bitcoin and other cryptocurrencies. The answer to that question is yes. Here are some examples of when you may have to pay taxes related to your cryptocurrency activity:

Using Bitcoin as Compensation

Do you own a business that accepts Bitcoin as a method of payment? Are you an independent contractor who has received Bitcoin as payment? Are you an employee of a business that pays at least partially in Bitcoin? If you said yes to any of these, that Bitcoin you received is considered taxable income by the IRS.

Cryptocurrency Transactions

The IRS considers cryptocurrency property. You don’t have to pay a tax when you buy crypto, but you may have to when you sell. If you sell or trade your crypto for a gain, you will have to pay a tax. Let’s say you bought $2,000 worth of crypto and later sold it for $2,200. You’d have to pay taxes on the $200 you made. Conversely, if you lose money on a transaction, you can deduct that from your taxes.

Selling/Spending/Trading

As we covered above, if you buy a certain amount of crypto at a certain price and then sell it for a gain, that is taxable income. Now let’s say you bought $10,000 worth of Bitcoin and you trade it for a boat that would normally cost $20,000. You would now have to pay taxes on that extra $10,000. But if you used that same $10,000 Bitcoin to buy $17,000 worth of another cryptocurrency, you’d have to report $7,000 in gains.

If you’re a crypto enthusiast but need assistance filing your crypto-related taxes, Traders Accounting can help. Our tax professionals can assist you in filing all Bitcoin and cryptocurrency-related taxes. Call 800-938-9513 today for a free consultation.

Day Trader Tax Services

A Tax Guide for Sole Proprietorship Traders

When you make part or all of your income from day trading, you have several different options for categorizing and conducting your enterprise. While business entities such as LLCs and C-Corporations are often the smartest choices as far as tax benefits go, many traders prefer to trade as a sole proprietorship.

Sole traders or proprietorships are popular because they are an easier type of business to establish, you retain full control, and tax preparation is less complicated. If you’re keeping your trading enterprise small and decide not to incorporate, there are a few things you’ll need to know about filing taxes as a sole trader.

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