Last Chance to Form an Entity for Meaningful Tax Benefits in 2012
September 26, 2012
By Robert A. Green
We invite you to attend our live Webinar, or watch the recording in support of this blog content.
This year more than ever, an entity is the wise choice for business traders in securities, futures, forex or other instruments. There is little time left to form and trade in a new entity to generate meaningful trading activity and tax benefits in 2012. We can help you form a husband/wife general partnership in about two days, or an LLC in a week. We recommend a single-member LLC with S-Corp election for single taxpayers. A big bonus to forming an entity is they don’t have to file Form 8949 for IRS cost-basis reporting. Entities also look much better to the IRS on claiming trader tax status.
The cost is low (around $750) but the convenience is high. You’ll need to open a new entity trading account(s), retaining non-pro data feed fee rates. It’s almost as easy as operating a joint individual account. Then, you can trade in the entity account for most of Q4 2012, which is sufficient time to generate meaningful activity. (If you wait to form an entity in late November, there won’t be enough time.)
Starting soon gives you plenty of time for AGI tax deduction strategies, including retirement plans and health insurance premiums (including premiums paid all year long). You can save between $3,000 and $17,000 or more with an individual 401(k) retirement plan established before year-end. Q4 gives you sufficient time to generate a reasonable administration fee paid by the entity to you individually and that unlocks the AGI-deduction strategies. This is possible whether you have trading gains or losses.
The new entity breaks the chain on wash sale loss deferrals in your individual accounts, erasing them by year-end. In the entity, you can elect Section 475 MTM ordinary gain or loss treatment within 75 days of inception, which affords you key hindsight at this critical juncture going into year-end. If you have capital loss carryovers, year-to-date capital losses or investment interest expense carryovers, and you have trading gains inside the entity in that first 75-day period, you can benefit from hindsight to skip Section 475 MTM for 2012. Next, consider electing Section 475 for 2013 by April 15, 2013. Alternatively, if you have a “clean slate” — i.e., no capital losses to deal with — then it’s wise to elect Section 475, especially if you have material losses in the entity to start in 2012. We will cover these decision-making points and strategies in the Webinar.
We used to say entities were optional for business traders, but with the IRS increasing exams on traders and that dreaded new Form 8949 for individuals, we now feel they’re required. If you’re interested in a new trading entity for 2012 or 2013 or if you already formed one, attend this Webinar to learn our latest entity tax strategies.
Posted 8 months, 3 days ago on September 26, 2012
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