TRADERS
TAX COMPLIANCE: PRIOR YEAR & LATE TAX RETURNS

Late filed and/or prior year's tax returns:

Many traders have not filed their prior year tax returns for various reasons; but filing late may or may not be a problem.

• Late entity tax returns are subject to late filing penalties in all cases. See the IRS Information About Your Notice, Penalty and Interest and scroll to page 2, #32. Late filing may be tolerable in some cases — contact us for details.
  
• Late individual tax returns are subject to onerous late-filing penalties and late-payment penalties, plus interest charged on the balance of tax owed with the tax return filing. Non-balance due tax returns will incur a small penalty for filing more than 60 days late.
  
• Learn more about tax penalties and late filing strategies on our blog "Extensions: Some traders may qualify for IRS penalty relief."

We suggest you sign up with our firm as soon as possible. If you are already late, it's much better to engage us and file with the IRS before it catches up with you. It can make a big difference when seeking abatement of penalties. Interest can never be abated. We can prepare your tax return within a few weeks if you provide all the tax information.

Some traders may have large trading losses and figure they don't owe taxes, so why bother filing? But it's only a matter of time before the IRS sends you a tax notice demanding that you file a return. Also be aware that the IRS won't necessarily know you have trading losses, so it may send a tax bill for trading gains based on your stock proceeds and cost basis reporting from the broker (which started in 2011), only. Plus it will add penalties and interest. Don't be shocked if your tax bill is several thousand dollars. Remember, the IRS is sent all Form 1099s from your brokers.

Some clients figure they don't have to file a tax return, since they are under the gross income threshold required. While that may be true, they may have large proceeds on securities which may require a tax filing. You should report all losses so you can later get the related tax benefits; otherwise you could lose the loss benefit entirely forever.

We strongly advise you to contact us for help. We can calculate your correct trading gains or losses for tax purposes. For example, maybe you mistakenly believe you could deduct all your trading losses against your other non-trading income, but since you don't have Section 475 mark-to-market accounting (with ordinary loss treatment), you're limited to net capital losses of $3,000 against other income. In that case, you may owe taxes. The same problem can exist because you are forced to defer wash sales and/or straddles. If you have Section 475 mark-to-market accounting, you may be leaving large tax refunds on the table, which we can file before you lose those tax benefits forever. We can calculate your correct trading gains (maybe losses) and trading business expenses. We can review your trading activity and if you qualified for trader tax status, we can file your return as a business trader for many additional tax advantages. We may be able to reduce your tax bill considerably. We also can work out a payment plan with the IRS and seek the abatement of all penalties (up to 25% of your tax bill plus more if negligence penalties).

Important notice for traders who elected Section 475 MTM for prior tax year that is late:
You should file your tax return with your Form 3115 (Change of Accounting Method) by the tax filing deadline of 9/15 or 10/15. If you file your Form 3115, technically you stand to lose your Section 475 MTM status, which can have significant negative consequences on your tax return. We have learned that the IRS may provide relief to taxpayers who make the MTM election statement on time, but file a late Form 3115. This is good news. If you elected MTM prior to the recent tax year, this notice does not apply to you.

Thank you for placing your trust in us,
Robert A. Green, CPA and Managing Member of Green NFH, LLC
Darren L. Neuschwander, CPA and Managing Member of Green NFH, LLC