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It looks as if we have a disagreement of experts. I was quoting from Ted
Tesser's article on page 90 of the June 2000 issue of Active Trader magazine
in which he discusses the 475 election and specifically states that a 475
election eliminates the preferential tax treatment of the 60/40 split for
Section 1256 contracts.
Guess we all better do our homework before next tax season.
For those of you who are not familiar with Ted Tesser. He is a CPA who
specializes in income taxes for traders and investors. His web site is at
the following URL
http://www.taxtrader.com/home.html
----- Original Message -----
From: "John F. Berentson" <jberentson@xxxxxxxxxx>
To: "Roger L. Shepherd" <mailrs@xxxxxxxxxx>; "Omega-list"
<Omega-list@xxxxxxxxxx>
Sent: Monday, July 23, 2001 5:03 PM
Subject: Re: Tax status
> Again, I don't think this is correct for futures. I have been filing as a
trader for five years and have always reported by futures profits on Form
6781 and received 60/40 tax treatment while deducting expenses on Schedule
C. Never been audited. However, since I am a day trader, I have never
elected to mark to market.
>
> I attach an excerpt taken off the net:
(http://www.thestreet.com/pf/funds/taxforum/904409.html)
>
> Quote:
> To start, you may file as a trader if you believe you meet the stringent
trader requirements we've spelled out in {HYPERLINK
"/basics/tradertaxes/716325.html"}previous stories.
> As a trader, you can mark to market your trades, which means you must
value your holdings as though they were sold at fair market value on the
last business day of the tax year. As a result, traders have the option of
taking an unlimited amount of losses, which can be used to offset any
income. Nontraders' losses are limited to the amount of their capital gains,
plus an additional $3,000 a year.
> But you must plan ahead to make the mark-to-market election. If you did
not make it on your 1998 tax return, you cannot mark your trades to market
for 1999. If you want to mark to market your trades this year, you'll need
to make that election by April 17. (See this previous {HYPERLINK
"/funds/taxes/880943.html"}story for more details.)
> But if you only trade S&P 500 futures and options on the S&P 100 (OEX),
you will not have to worry about making this election, says Gail Winawer,
tax securities partner at American Express Tax & Business Services in New
York.
> In the tax world, these are known as "section 1256 securities," named for
{HYPERLINK
"http://www.fourmilab.ch/ustax/www/t26-A-1-P-IV-1256.html"}section 1256 of
the tax code, which governs how they're treated.
> And section 1256 says that whether or not you're a trader, any open
positions in these securities must be marked to market at year-end anyway,
and your gains and losses are subject to the 60/40 rule.
> The 60/40 rule says that 60% of gains and losses from these securities is
long-term and 40% is short-term, regardless of the actual time you've held
these securities. The rule applies to regulated futures contracts, foreign
currency contracts or options on stock index futures and broad- based stock
indices, such as the S&P 100.
> You must report your gains and losses from these securities on {HYPERLINK
"http://192.239.92.40/prod/forms_pubs/forms.html"}Form 6781 -- Gains and
Losses From Section 1256 Contracts and Straddles. Your totals will flow up
to {HYPERLINK "http://192.239.92.40/prod/forms_pubs/forms.html"}Schedule
D -- Capital Gains and Losses. Check out this previous {HYPERLINK
"/funds/taxes/725811.html"}Tax Forum for an example of Form 6781.
> End quote.
>
>
>
>
>
> On 23 Jul 2001, at 14:44, Roger L. Shepherd wrote:
>
> > This is getting deeper than I wanted to get but I will explain. If you
> > trade commodities or OEX options (also known at Section 1256 contracts
> > under the IRS rules) 40% or your gains and losses are treated as
> > long-term and taxed at the lower rate regardless of how long your were
> > in the trade. But if you elect trader status you lose this treatment
> > for these assets.
> >
> > You are correct however for capital assets, other than those listed
> > above, you report on schedule D and the trades are considered long or
> > short term based on the time period held whether or not you have
> > elected "trader status"
> >
> > My point of view as to not wanting to elect "trader status" is
> > primarily due to the fact that I trade short term and only trade
> > commodities.
> >
> > By the way once you elect trader status, the election is permanent
> > unless you apply for a rescission. Roger
> >
> >
> > ----- Original Message -----
>
>
> JFB
> NYC
>
>
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