EDUCATION CENTER
INTERACTIVE: 3RD QUARTER, 2009 FREE CONFERENCE CALLS & PODCASTS

Sept. 24, 2009.
(mp3 file, 9.6 MB, 84:18 length).

Description: Full discussion of our Roth IRA conversion strategies (read about them on our blog). Plus several other good tax questions and answers; see the table of contents below. Update from Brent Gillett JD on financial reform in the U.S. and EU and how they are attempting to coordinate. Update from Robert Green on the financial-transaction tax.

00:00 Opening remarks from Green.

01:30 to 12:55 — Question about the Roth IRA conversion strategy: How it is accomplished, requirements and effect on 2009 and 2008 taxes. If you converted in 2008, and the assets dropped in value in 2009, consider a recharacterization (redo) by Oct. 15, 2009. You can convert again in 2009 or 2010 (in 2010 the income threshold is waived). This is a great way to avoid the higher tax rates coming in 2011. Full coverage of this question and answer, plus a history of tax rates and how they are headed higher. Accelerate long-term capital gains and qualifying dividends in C-corps before that tax rate increases in 2011. We cover this topic in our blog article "Year-end tax planning, part 1."

13:10 — Question: Is it a good idea to convert to a Roth IRA at age 70 and a half as well? The answer is yes. Discussion of RMD (required minimum) distribution rules which only apply to regular IRAs (not Roth IRAs).

15:10 — Question about husband-and-wife partnership. If you have an annual loss, can you assess a fee for earned income in order to deduct health insurance premiums from AGI? Another choice is to deduct health insurance on Schedule A as a medical expense limited to 7.5 percent of AGI. Run it both ways to see which strategy is best, comparing net income tax to SE tax on the fee. You need good tax software for tax planning and preparation.

17:40 — Question about converting to a Roth IRA to avoid higher taxes in the future. How does unrelated business income tax (UBIT) come into play with a Roth IRA or with active trading in regular retirement accounts? UBIT is not an issue with Roth IRAs because they are tax-free. UBIT is generally triggered from using leverage, specifically margin or debt on securities in a regular retirement plan. UBIT also doesn’t apply to futures and forex. Can active trading trigger UBIT? Generally, no. We also discuss "self-dealing" and "prohibited transaction" rules. Fees on retirement plans, including Roth IRAs, are prohibited transactions. You can take a loan from a qualified plan only (an IRA doesn’t qualify). These issues are covered in Green’s blog article on Mini 401k plans.

23:55 — Introduction of co-host Brent Gillett JD who just joined the call.

25:00 — Gillett speaks about the EU's new Alternative Investment Fund Managers (AIFM ) directive for financial reform affecting investment managers. Third country managers that don't comply won’t be able to sell their funds in participating EU countries. U.S. and UK investment-manager associations have raised concerns. This EU directive deals with marketing, valuation, custody, disclosures, minimum capital and many other issues. An exemption for smaller managers is expected. Investment managers may need $500,000 to $1 million of net capital. It applies to fund vehicles (investment pools); it doesn’t apply to management accounts. Discussion on EU and U.S. efforts and how the U.S. and EU will probably act on their own to start so as not to delay matters waiting for global consensus, which includes Asian countries.

32:50 - Update from Green on the financial-transaction tax firestorm, including a new spin on it — a "currency tax" on global foreign exchange transactions. French ministers and other EU ministers advocate a currency tax (as well as a financial-transaction tax) to be used to help the poor. See "A Tiny Tax Could Do a World of Good" in The New York Times on Sept. 23, 2009. It's hard to argue against helping the poor, however, other sources of revenue can be raised for that cause. An ill-conceived financial-transaction tax will have many unintended and unwanted consequences. The fairness argument is being played, and bankers have been named the cause of the world financial collapse. Government officials want to tax bankers and traders because they make big profits. Traders need to be exempt from this global initiative to save the poor, as they need to focus on feeding their own families first. Green makes many new points on the subject and even questions the fairness of progressive tax concepts and targeting hard-earned income. Should social costs be paid by those that help cause social problems? Will a global currency tax usurp a U.S. initiative for a financial-transaction tax to help close the U.S. budget deficit? The good thing is this global talk may slow down a U.S. financial-transaction tax. Let's not rush to global financial reform and a global-transaction tax without full debate. It reminds Green of the health-care debate.

39:45 - Gillett comments on some states such as Washington that are taking a very aggressive stance on registered investment advisors. Washington is now treating investors in a hedge fund as direct clients of the manager, which means the manager owes an independent fiduciary duty to each investor. (The SEC doesn’t take this strict of a stance.) The manager must now make sure the hedge fund is suitable for the investor. Brokers do that as well, but many smaller funds don't use brokers for marketing their funds’ interests.

43:00 — Green and Gillett talk about after-the-fact attacks from the IRS and regulators. IRS and state tax exams are on the rise, but how far back can regulators look? If you get into trouble with regulators, what are the potential civil and criminal risks, and can you get insurance to cover it? Unless the trouble includes outright fraud, such as theft (e.g., stealing money in a Ponzi scheme), the penalty will likely be a civil fine, which isn’t too high ($250 to a few thousand). However, these fines could reach $5,000-$100,00 per client for operating an unregistered fund. States are hungry for more revenue and fines.

46:50 — Question about setting up an entity for a trader: Is it better to set up one or two entities? For married traders, a simple husband-and-wife general partnership is usually all that is needed. There are no state filing fees, annual fees, or state taxes, and it’s portable from state to state. Single traders can have a general partnership too. They need a second entity, such as a C-corp or S-corp, to own 1 percent of the general partnership. This is a good idea in states such as California and New York City. One client said the second entity is a less expensive option than getting married in order to have a general partnership alone. In most states, only an S-corp is needed without any other partnership. Special rules in Illinois, Texas, California and New York apply. Money managers must have liability protection with an LLC or corp; consult Gillett on that. Do you need a separate bank account for the entity? Medical-reimbursement plans in C-corps can be added to the mix.

52:35 — Alter ego issues with smaller investment managers. Is the “corp” veil respected? Gillett says Don't use the corp account as your own bank account. Respect the corp formalities. Protect yourself with good legal advice.

54:15 — Tough states on investment managers. Utah is better now. Washington is tougher. Michigan just liberalized its rules to allow performance fees with the uniform model code. There is still some confusion.

57:00 — Commentary by Nick (a frequent caller and a co-founder of the Traders Association) and Green on the currency tax (Tobin tax). What role will China play in this currency tax? Discussion on the financial-transaction tax and financial reform in general. Will the U.S. ultimately defend its financial-center interests? Or will the U.S. let go of some of those interests in order to reach a global consensus, potentially losing financial services business to businesses abroad? We discuss the chances of the financial-transaction tax coming to fruition. The global currency tax may usurp the U.S. financial-transaction tax and finding a global consensus may slow down enactment. Broader discussion on tax policy, U.S. vs. the world, helping the world's poor and progressive taxation.

71:30 — Question about trader tax status and entities. A caller formed a trading entity and now must go back to his last software job. Should he close the entity, or can he keep up his trader tax status levels while working a full-time job? How should this be presented on a tax return? How traders find financial freedom trading on their own.

74:15 — A trader wants to form a new LLC quickly before year-end 2009. How to handle capital losses from earlier in the year in his individual accounts. The LLC passes through capital gains and losses or MTM ordinary gains and losses to an individual tax return. How to use the entity to either generate capital gains (to use up capital losses) or claim MTM ordinary losses to offset wages and other income. It's a tricky game to dig out of a capital-loss hole. Learn more about this strategy including "do-overs" on our entity formation page.

77:00 - Brent Gillett says goodbye and gives contact info. Find Brent on our “Contact Us” page. Special investment-management business conference calls and Webinars are coming soon.

78:50 — Question about 2008 tax preparation for a trading LLC partnership. The K-1 shows "limited partner" but this person’s spouse is not passive. Passive activity loss rules do not apply in trading partnerships. Passive owners receive all business tax breaks (trader tax status business expenses and Section 475 MTM); however they are stuck with investment-expense limitations. Active owners receive the more favorable business interest expense treatment. How we work with clients on entities and tax preparation.

82:30 — Green closing remarks.

Sept. 17, 2009.
(mp3 file, 8.3 MB, 72:31 length).

Description: This call is a continuation (in style and content) from our last call on Sept. 3 (podcast and TOC below), including Green's take on the latest developments on the proposed financial-transaction tax, other tax increases and financial reform.

Green continues his fight against tax increases and onerous new regulations on traders and investment-management businesses. The fault lines are moving to a global stage with attempted coordination by the G20, U.S., EU and even the UN speaking out on these contentious issues.

Will financial reform and the financial-transaction tax wind up like the Kyoto treaty for global warming, with some countries opting out because others wouldn't sign on? Unless all the leading financial centers adopt the same financial-transaction tax policy and financial reform, traders and managers may move to the countries offering the best tax and regulatory policy.

Will U.S. Democrats and Republicans find common ground in defending U.S. financial market interests? Worldwide coordination efforts take time and sometimes it's difficult to reach a consensus. It’s even further complicated when countries swing from left to right and back again.

Green believes you should sell the rhetoric and buy the reality. So far, the transaction-tax talks have been full of emotional rhetoric to deflect blame and for political pandering. Don't be scared off from carrying on your trading and/or investment-management business.

Open remarks: Tax deadlines, penalties and consequences of filing late (get 3115s filed on time and NOL election for five-year carryback too).

We discuss year-end tax planning and special strategies this year considering tax rates are headed higher.

Roth IRA conversions.

08:40 - Question about status of financial-transaction tax. Global politics and coordination are now involved. There appears to be a connection with the financial-transaction tax and financial reform efforts too.

20:00 - Question posed: How can you qualify for trader tax status if you must trade less to avoid a financial-transaction tax? Green agrees and comments on tax notice escalation too.

23:15 - Caller lost job and went into full-time trading, and asks about estimated taxes.

Sept. 3, 2009 - Financial-Transaction Tax Threat
(mp3 file, 89:05 length).

Description: An edgy call with some venting from Robert Green against the financial-transaction tax, other tax increases and his opinions on the current debates in Washington and worldwide (on health care, tax policy, financial reforms, socialism vs. capitalism and more). Read Green's blog article today on the financial-transaction tax threat too.

00:00 - Opening remarks from Green and discussion with callers on financial-transaction tax.

39:00 Financial reform update from Brent Gillett, JD and Green. Super-regulator, joint SEC and CFTC talks and how they relate to overlooking the Madoff Ponzi scheme. Regulators and IRS are turning up the heat.

47:00 - Traders are changing states and even countries to reduce their tax burdens. Nexus and other related tax and regulatory issues and strategies. For traders, incubator funds and hedge funds.

54:50 - Incubator funds.

58:30 - New trader issues and strategies, including tax treatment elections, entities, retirement plans, start-up costs and more. Trader tax status vs. investor tax status and different ways to move forward, maximizing tax benefits with less IRS risk. Get organized on the tax and business front ahead of time.

66:30 - How Gillett can help investment advisors network and accomplish their goals. Aside from his legal services, he offers advice for prime brokers, raising money, compliance and more.

70:50 – A well-informed attendee comments on financial-transaction tax from his perspective as a long-term member of a stock exchange. Lots of back and forth with Green. The caller agrees it's a war against capitalism. Great comments on the inner-workings of financial exchanges; how they have morphed from human specialists to computerized electronic trading, and how it may be going too far with fast trading. Is the financial-transaction tax a justified way to reverse fast-trading abuses? Day trading is hard in the current markets, with all the changes that have occurred over the years with decimals, fast trading and more. Dark pools provide VIP (fast trader) access and potential front running. That should be fixed on its own without a a financial-transaction tax, which would allow a paid-way to front run and cherry pick. The government would be complicit in that inappropriate behavior if this tax is assessed.

80:00 - Closing remarks which lead to more good back and forth discussion. Traders are like money farmers —think of them as small family farms vs. the big-farm cooperatives (Wall Street firms). Online trading has leveled the playing field and small business traders play a special role in society (with capital formation and more) — a role that big trading firms don’t necessarily fill. Keep online traders in business and don't allow a financial-transaction tax put them out of business.

Aug. 27, 2009 - Questions and Answers:
(mp3 file,10.5 MB download).

Opening remarks.

03:15 - S-corp with C-corp entity combo and questions about SE tax. Single traders can use a C-corp to form a general partnership and also for fringe benefit plans such as a medical reimbursement plan. Earned income is reported in the C-corp rather than on your Schedule C.

09:50 - Green Energy Active Investor projects and structures. Great opportunities!

14:45 - Brent Gillett JD discusses hot topics and news. Investor Protection Act and heightened fiduciary duty to clients in fund. House passed the corporate governance Compensation Fairness Act which may enable Congress to limit hedge-fund manager compensation. Two potential problems here. Status of financial reform?

18:00 – We are working on a retirement trust concept. Retired traders can skip trader tax status and deduct trading losses and expenses directly in their retirement accounts. So, they pay taxes only on the net amount, not the gross over time. Details on how the direct payment or reimbursement of expenses from the retirement trust account work.

29:00 - Special Roth IRA conversion breaks in 2010. Roth Mini 401k features are available too. Tax planning with Roth IRA conversions, and when to choose the traditional vs. the Roth feature.

35:33 - Gillet answers a question from a registered investment advisor who took a job for another registered investment advisor. Dual registration in some states and other options are covered.

38:20 - Registration rules and the 15-client rule of the SEC and NFA. Some states require registration for just one client.

40:00 - Green Energy deal questions in Wisconsin. Should Green approach power companies for ideas? Yes, great idea and the reasons why.

42:00 – Active investor tax breaks for other industries too: software and open source.

46:00 - Roth vs. traditional solo 401k features. Can a trader have both in one product and choose each year which feature is best? In a year with low income and little to no benefit from a traditional plan contribution deduction, why not choose the Roth contribution instead?

50:00 - Michigan issues for hedge fund managers. Michigan did not allow performance fees in the past and there may be new rules now.

53:50 - Traders Association update, Facebook efforts and more. Facebook strategies, privacy, security and dos and don'ts. General dos and don'ts for statements made on the Internet.

1:04:00 - Compliance issues. Compliance services from Gillett’s his new Investment Compliance Group. Don't mention a fund on Facebook if it’s a private fund.

1:10:00 - Michigan follow up question; see above.

1:12:00 - Forex trader opts out of Section 988 into Section 1256g lower 60/40 tax rates during the year. Forex tax rules. FXCM UK accounts are considered foreign accounts as we understand it and therefore require a foreign bank account report. We don't think there are any UK taxes, but we aren’t sure yet. We can handle all the forex rules in tax preparation.

1:16:00 - Trader tax status attacks from the IRS — exams, appeals and tax court. How it relates to Section 475 MTM. Can you get an IRS clearance on trader tax status before filing? Probably not, but an intriguing idea. Holsinger, Chen and Vines tax court cases. When you don't need trader tax status and other options.

1:20:50 - UK tax increases are causing havoc on the other side of the pond.

Aug. 20, 2009 - Questions & Answers
(mp3 file, 9.7 MB download).

00:00 - Opening remarks from Robert A. Green, CPA.
GreenTraderTax Traders Association Group page on Robert Green's Facebook page at facebook.com/Robert.Green.TraderTax. Please join as a friend and also as a fan of the group. Consequences for filing 2008 tax returns late. Year-end tax planning topics to consider today. Hedge funds and regulatory changes coming.

04:10 Green Energy Active Investors tax breaks.

The rest is all Q&A:

06:33 - Forex trader asks about Section 988 and 1256g for lower 60/40 treatment.

12:35 - CPA asks a question about a forex day trader with another business too. Tax return preparation questions and answers. SE tax implications and more.

17:05 - Two questions on retirement trust accounts; the pros and cons and how to integrate them into trader tax status and more. Examples of the strategies Green wrote and spoke about here (see July 15, 2009 article and new video).

34:20 - Traders vs. dealers. There are many nuances in the tax code. CPAs new to trader tax will have many questions and we can help them.

36:00 - Transfer of income strategy to unlock home office deductions. You need footnotes to explain trader tax treatment and footnote. See our guides.

38:50 - Trading entities and how to create earned income for retirement-plan deductions. Use entities to claim trader tax status and focus all trader tax matters on one tax return. We recommend simple pass-through entities (general partnership, multi-member LLCs or S-corps). Add a C-corp to the mix only if you are single to form a general partnership and if you want a medical reimbursement plan (only allowed in C-corps).

43:25 - How our consultations work along with entity upgrades.

45:35 - Reimbursement of trading expenses in retirement-plan accounts

46:55 - How to qualify for trader tax status, even later in the year. IRS rules, tax court cases and GreenTraderTax's golden rules.

55:45 - Electing Section 475 MTM in a new entity formed later in the year. The MTM election gamble if you have capital-loss carryovers.

58:25 - Net operating loss rules. The five-year NOL carryback choice is for 2008 only; 2009 reverts back to the two-year carryback rule. California and Hawaii don't allow NOL carrybacks. Will other states do the same? You can't amend tax returns to change an NOL election choice.

1:02:00 - Consultation archives. Formal memos are available.

1:04:00 - Dallas, Texas CPA asks a question about trader tax and MTM. Matching earlier year capital gains and if a new entity is formed with MTM for the rest of the year. We discuss the Texas margins tax and how it's avoided with a husband and wife general partnership . Be careful not to take MTM ordinary loss treatment on older investments with unrealized losses by trying to transfer those investment positions into the entity (Section 724b & c prevents this). Year-end tax planning; avoiding wash sales.

1:09:30 - MTM elections for existing taxpayers (externally with IRS) vs. new taxpayers (internal election).

1:10:25 - How long does it take to form a GreenTraderTax entity. Usually one to two days for our paperwork and three to five days more if it's an LLC or corp with a state turnaround.

1:13:00 - Forex traders don't have wash sales rules because of Section 988 ordinary gain or loss or 1256g MTM treatment.

1:14:00 - Traders Association discussion.

1:21:00- Mini 401k plans for trading entities and whether to use salary or fee arrangements (pros and cons).

1:23:00 - Closing remarks.

Thursday, August 6, 2009 - Traders Association:
(mp3 file, 9.7 MB download).

* Traders Association. Click here to read our blog published today on the Traders Association. We discussed this content and received good feedback and suggestions from callers. Brent Gillett JD explained how he can support the association as well. We are proceeding with your help, so please spread the word.
* Investment Management Business update from Gillett (09:15).
* FXCM UK update.
* Retirement-plan strategies. Caller asks what is the best way to proceed. withretirement-plan trading, vs. taxable account trading and factoring in trader tax status and entity issues.
* What to do on trader tax status and Section 475 MTM if you cease trading in a trading entity.
* Traders Association interaction.

Thursday, July 30, 2009: Foreign account tax matters and more:
(mp3 file, 8.4 MB download).
Sorry, it's unedited and the sound is not great, so using a headset may be preferable.

* IRS offshore account voluntary disclosure program expires on 9/23/09. Also read our blog article dated July 31, 2009 on this subject. We touch on this issue throughout the call today. Later on in area 55 minutes, we talk about the nuances of filing six years of amended tax returns with futures carrybacks, NOLs and foreign tax credits. Many traders also want trader tax status business expenses to apply to the non-disclosed foreign account trading activities to reduce the late filed taxable income amounts, so involving our firm is a wise move even if you have another firm in charge of your amended tax-return preparation. We are advising other CPAs and tax attorneys on these matters.
* Proposed rules for beefing up investment advisor registration requirements.
Advisors for smaller investment funds and managed accounts (under $25 million or $30 million in some cases) may still be exempt from registration under the proposed new regulations. Under the new tougher rules, advisors for larger funds and managed accounts may no longer use the exemptions used in the past to avoid registration.
* Foreign managed accounts and rules for Americans investing in offshore hedge funds (around 30 minutes into call). Do tax compliance requirements (Form 5471, TDF 90.22-1 and PFIC reporting) or lack thereof on the fund level impact American investors and their tax compliance? Yes, the investor could be liable if the manager botches fund-level reporting and compliance. For example, if the fund does not file the TDF 90.22-1, every investor might get hit with the $10,000 penalty as well for non-filing. Discussion of PFIC rules and how they impact Americans in offshore funds. Even though the funds are often set up as C-corps, they are treated as pass through entities for U.S. tax purposes. Americans should file QEF elections for PFIC reporting. Ask your offshore fund managers about this.
* How to do tax accounting on foreign accounts; the challenges, rules and other comments. It can be very difficult (around 35 minutes into call).
* FXCM UK accounts and UK tax matters (around 39 minutes into call). We are awaiting more answers here, but currently we think these are foreign bank accounts requiring foreign bank account reporting (simple information reporting on TDF 90.22-1). We currently think and hope that Americans not living in the UK aren’t subject to UK taxation on trading gains; similar to the rules in the U.S. for non-residents). We expect to have full answers soon. Discussion on the new UK flat tax on non-domiciled residents and the stamp tax, and how they are hurting London as a money center.
* Foreign tax credits should not be impacted with new tax legislation in the U.S. (around 52 minutes into call). Avoiding double-taxation among countries is a focal point of tax treaties. American traders living outside the U.S. can get extra tax benefits with Form 2555 foreign earned income and housing allowances exclusions. Filing amended returns for the voluntary disclosure program mentioned above can be confusing.
* Real estate funds and Green Energy Active Investor vehicles are more popular now (around 58 minutes into call). Green gives his op-ed commentary on the real estate bubble, overreaction to the bursting of the bubble and the inevitable rise again of real estate (and other asset classes and business). Plus, how to participate in and benefit from the coming green energy revolution.