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This was the lead in on the above that was in an email I received from them:
If, as the ancient Chinese saying suggests, crisis creates opportunity, we've got more opportunity surrounding us in today's tumultuous financial markets than most of us ever thought possible.
Some traders will be happy just to have weathered the unprecedented storm-of-the-new-century with their financial boat afloat, while others are ready to go water skiing on the outbound surge of opportunity ahead.
However you fared in the rough waters that preceded the largest financial bailout in history, it's no time to leave your Individual Retirement Account dead in the water.
What? You didn't know you could use your IRA to trade on margin or sell stock short?
You most certainly can. The Economic Growth and Tax Relief Reconciliation Act of 2001 opened those floodgates, not only to margin trading and short sales, but also to a wide variety of non-traditional investments, including real estate, deeds of trust, certain business entities and even coins and bullion.
How did you miss the memo? More than likely, your broker never mentioned it. Brokerage houses, you see, are not keen on the idea of you leveraging your IRA account or pursuing downside earnings, and so have perpetuated the myth that IRAs are somehow off-limits for traders.
Bull hockey. Nothing could be further from the truth. In fact, the IRS finds margin trading and short selling your IRA perfectly acceptable, provided you stay within its tax rules. And some exceptions do apply.
A Traders Accounting professional can advise you on the most tax-effective ways to get your IRA up to cruising speed without jumping the shark!
IRA Margin Trading
The IRS has specific guidelines (called debt financed income rules) that govern trading your IRA on margin. The bad news is, the rules primarily ensure the government gets a cut of your profits. The good news is, the split is a generous one, at least by IRS standards: you only pay tax at the corporate tax rate on the profits you make on the borrowed money alone.
Here's how it works: Say you use your $80,000 IRA to purchase a position for $100,000. When your IRA exits the position with a profit of $50,000, 20% of your profit – $10,000 – would be subject to tax because you borrowed 20% of the IRA amount ($20,000) to make the margin trade.
IRA Short Sales
The news gets even better when it comes to short sales. Hard as it may be to believe, the IRS doesn't view borrowing stock against your IRA and selling it within your margin account as incurring debt. As a result, you get to keep every cent you earn on a short sale, tax-free within your IRA, without facing the debt financed income rules.
Here's an example: You think XYZ stock is overpriced at $100 a share. So you instruct your broker to sell short $100,000 worth for your IRA account; essentially your IRA borrows 1,000 shares of stock from your broker and sells those shares. When your prediction comes true and XYZ stock drops to $80 a share, you buy your 1,000 shares back for $80,000, turn them over to your broker to close out your position, and walk away with a $20,000 profit.
Granted, you will be liable for taxes when you ultimately take distributions from your IRA (unless you used a Roth IRA). But you could increase your IRA investing account by 40% or more in the process, and if you trade within a Roth IRA, you'll take your distributions tax-free.
Non-Traditional Investments
Naturally, the vast majority of America's IRAs are invested in conventional assets such as stocks and mutual funds. But the IRS does allow for a handful of non-traditional investments as well. They include:
Real estate: leveraged or un-leveraged single- and multi-unit homes, commercial real estate and land
Private stock
Promissory notes, mortgages and deeds of trust
Tax liens
Limited partnerships, Limited Liability Companies and Private Placement Limited Partnerships
Certain coins and bullion, including gold, silver and platinum.
However, the IRS won't let you sink your IRA into artwork, rugs, antiques, metals and gems (with some exceptions), stamps, coins, alcoholic beverages or life insurance.
The best way to ride the wake of these opportunities is to structure your IRA in a way that will bypass the broker or even self-directed IRA custodian.
Isn't it time to bring your IRA up to speed? Contact Traders Accounting today. We'll help you rev up your snoozing IRA and turn it into a vigorous, tax-advantaged ski boat.
On Tue, Oct 21, 2008 at 10:43 PM, dingo <waledingo@xxxxxxxxx> wrote:
Steve,
Re IRA investing - you might wanna read this:
d
On Tue, Oct 21, 2008 at 9:54 PM, Steve Dugas <sjdugas@xxxxxxxxxxx> wrote:
Thank you Dennis, just shrinking the paperwork is a pretty good reason to switch. 8 - )
BTW, would you happen to know about trading futures in an IRA? Can it be done? Can one somehow use futures to go short in an IRA? Thanks again!
Steve
----- Original Message -----
Sent: Tuesday, October 21, 2008 5:57 PM
Subject: Re: [amibroker] Semi-OT: Portfolio Manager for frequent Swing Trading
Steve,
With stocks and options, you have to reconcile and show every transaction in your account during the year on Schedule-D. For an active trader, this can amount to a lot of work matching trades and figuring out special situations like mergers. With futures (commodities in IRS speak), the broker just gives you a statement that says you made x dollars in the year on Y commodity (like the S&P 500 or Silver)... end of story. You fill out a different one page schedule --not Schedule-D. Stocks are considered individual investments. Futures are considered a hedge for real stuff as a business need for producers. Futures speculators help keep the commodities prices liquid and at a fair price which helps the economy run smoothly.
BR,
Dennis
On Oct 21, 2008, at 5:18 PM, Steve Dugas wrote:
Hi Dennis - I have been thinking about trying futures lately, I know they get the beneficial 60/40 tax treatment but I never knew the paperwork was so much easier...could you briefly explain what the IRS requires for futures? Thanks!
Steve
----- Original Message -----
Sent: Tuesday, October 21, 2008 3:19 PM
Subject: Re: [amibroker] Semi-OT: Portfolio Manager for frequent Swing Trading
Hello Ken,
I am a frequent trader. I use thinkorswim as a broker. I use their built-in tools for all actual trade accounting, including tax prep. Actually tax accounting is such a pain, that I prefer to trade futures because it eliminates 99.9% of the tax paperwork in the US. To get an equity curve, I input my account basis and liquidation value in a spreadsheet each night. It only takes about 5 minutes. I also keep a trade log of my trades each day for my own learning purposes.
There is no connection between TOS and AmiBroker programs.
Best regards,
Dennis
On Oct 21, 2008, at 3:47 AM, Ken Close wrote:
Google searches produce nothing useful, so I would like to ask this question of frequent swing and day traders: what software do you use to track trade results (closed trades especially but also open trades)? Does it include calculation and display of a total resulting equity curve? Does it help in any way for collecting and exporting reports for use at tax time? Does it integrate with Amibroker or is standalone? Please note that I am not asking about the backtesting and resulting listing of trades and their statistics in Amibroker, but rather the recording of real trades made and closed over time.
As background to the questions, as I consider a more frequent trading system compared to mutual funds and positions held for many weeks if not multiple months, one that might make trades lasting weeks at most and perhaps only days, my mind boggles at the recordkeeping involved. With potential trade volumes in the 10 to 30 per week, the data entry starts to seem formidible. Surely some (many?) on this list do this all the time, and I would appreciate knowing something about your recordkeeping system(s), not your timing systems (:-o).
Now before TJ jumps in here, I just reviewed the AB Account Manager Help page. This seems like it is what I am asking for, but I wonder if anyone uses it for their real work, and if its "limitations" (one level of undo, chronological entry order, not clear whether reports can be exported or not) inhibit it for the purpose I am asking about. If you use something else, it must offer benefits pveer the built-in Account Manager---what are they?
Is this enough information for you to respond? Thanks for sharing.
Ken
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