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The 475 election is NOT to elect trader status. It is to elect to treat
what would in any other situation be capital gains and losses as ordinary
income and loss. This is so that you may take all of your losses in one
year. It is however a double edged sword because in profitable years you
will have ordinary income as opposed to capital gains.
Another common reason for doing this is so that you can have a Keogh or
pension plan if your only income is from trading. Pensions can only be
funded with earned income subject to the FICA or Self Employment tax.
Ted Tesser suggests among other things that you might trade through
different entities all with trader status and some with the Section 475
election. This gives you the flexibility to take losses in a year they are
significant, the ability to fund a pension plan and also the ability to
treat at least some of your trades as capital gains. I do not necessarily
subscribe to this line of thought, but it is what he suggests in his article
and seminars.
Again please be careful, you are tossing around code sections and terms of
art, without understanding all of them fully.
Perry
Futures on Stocks Central
H. Perry Dahm, CPA, CTA
mailto:hpdahm@xxxxxxxxxxxxx
300 Esplanade Drive, 9th Floor
Oxnard, CA 93030
805-981-3929
800-350-8744
Disclaimer: This is not an offer of tax advice nor is it to be construed as
a solicitation for tax clients. Tax advice should always be tailored to the
individual needs and circumstances, and should never be treated as one size
fits all treatment. The statements you make on your tax return are made
under the penalties of perjury and should not be taken lightly or without
proper consultation and/or knowledge. Always consult a tax professional
when you have questions or you are in doubt.
-----Original Message-----
From: Roger L. Shepherd [mailto:mailrs@xxxxxxxxxx]
Sent: Monday, July 23, 2001 3:59 PM
To: Omega-list
Subject: Re: Tax status
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
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