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GreenTraderTax Blog
GreenTraderTax
October 19, 2010
Year-end tax tips for this uncertain time
Congress is procrastinating on 2010 year-end tax changes, so traders may want to deploy tax strategies that allow the use of hindsight changes later on.
As of mid-October, it’s hard to predict what will happen with the Bush tax cuts. President Obama and many Democrats want to extend them for middle- and lower-incomes only. Republicans and some Democrats want to extend them for all tax brackets. Plus, there are other important tax changes to be decided on including the tax extenders bill and the annual AMT patch.
Several Democrats are campaigning for extending the Bush tax cuts for everyone — enough to win that position in Congress — but can these incumbent Democrats be counted on to vote as they promised during a lame-duck session or the next Congress? If anything, the lame-duck session should strengthen the Republican Senatorial filibuster because a few Democrat Senators may be replaced by a Republican midterm election winner. Pollsters currently expect the next Congress to have significantly more Republican seats too. President Obama holds his veto rights no matter what happens with changes in Congress.
Tax planning is a mess
This added political intrigue and expiration of Bush tax cuts throws year-end tax planning maneuvers into special disarray. Do you need to do year-end tax planning based on three different “monstrosities of a tax code,” to borrow the term from past Bush Treasury Secretary Paul O’Neil? There’s the current tax code, the pre-Bush tax code, and President Obama’s plan to slice-and-dice the two tax codes to broaden progressive taxation by demanding the rich pay more. At this late juncture, the IRS, tax publishers and payroll processors all have said they can’t make the year-end deadlines with proper tax resources, forms, and formulas.
Hopefully, Congress will come to an agreement on most of these crucial tax changes. But there is a chance it may continue its gridlock and punt these crucial decisions until the next Congress in 2011. Remember how long health care reform took. If Congress acts in mid-2011, will it make the changes retroactive to Jan. 1, 2011? This makes 2010 year-end tax planning a gamble.
Two-year extension expected
Most betting men would say Congress will extend Bush tax cuts for everyone for two years, as that seems to be the easiest and most practical fix at this late juncture. Full extension of the Bush tax cuts is probably the safest way to avoid a double-dip recession by not attacking the job creators with a big tax increase.
China is still buying U.S. Treasuries (as of October) and the Chinese are probably more concerned with a brewing trade and currency war than with the U.S. deficit going up more with full scale Bush tax cut extension.
How to proceed if the tax cuts expire
Most tax professionals and publishers are focused on the Bush tax cuts expiring for the upper two marginal income tax brackets. They are suggesting a reverse strategy to most tax years and accelerating income into 2010 at the lower tax rates (considering they may rise in 2011).
Investors might consider selling open unrealized-gain positions before year-end to lock in a lower tax rate. (Wash-sale loss rules — buying back a security 30 days before or after — are only a concern on realizing losses.)
Even if the Bush tax cuts are extended for everyone, it may be temporary. Unfortunately, you can’t unwind a public stock transaction, so it’s a gamble if you sell before Congress acts on the tax cuts.
Consider the market and price levels too. If you feel it’s a good time to sell for market reasons, then it may be better tax-wise too. Generally, deferring capital gains taxes leads to higher compounded after-tax returns. It takes courage to pay taxes early.
Focus on moves providing hindsight
Wait as long as possible to see if Congress acts before year-end. If they don’t, look for tax strategies that can be executed before year-end and reclassified after. You can make a move based on expectation and unwind it if Congress makes different decisions later.
Roth IRA conversions
Beginning with 2010, all taxpayers may convert their retirement plans to a Roth IRA (or Roth qualified plan). Prior to 2010, a fairly low income threshold ($100,000) disallowed higher-income taxpayers from using this special tax break. Also, in 2010 taxpayers have a choice of taking their entire Roth-converted amounts into 2010 income or deferring the income to 2011 and 2012 (50 percent each). You have to convert before year-end; you can’t use this break after.
If the Bush tax cuts are extended for two years, you can choose to defer the taxes owed on the Roth conversion to 2011 and 2012 before the rates go up. If the Bush tax cuts are not extended at all or for just one year, then skip the deferral and report the converted income in 2010 at lower tax rates.
If you aren’t happy with the Roth conversion — suppose the converted assets drop in value by a large amount — you can unwind (recharacterize) the entire conversion before Oct. 15, 2011. Make sure to file a 2010 tax-return extension on April 15 so it’s easier to recharacterize. If your Roth IRA significantly drops in value after conversion, it’s better to convert the account after the losses.
Take advantage of qualifying dividend tax rates
Another important change when the Bush tax cuts expire is the qualifying dividend tax rate will skyrocket to much higher ordinary tax rates. The highest ordinary rate for 2010 is 35 percent and it’s scheduled to rise in 2011 to 39.6 percent, plus there are various phase-outs (meaning it’s closer to 41 percent). The long-term capital gains tax rate is 15 percent for 2010 and it’s scheduled to rise to 20 percent for 2011.
President Obama and Treasury Secretary Timothy Geithner hope Congress can strike a deal for the qualifying dividend tax rate to remain hitched to the long-term capital gains tax rate, so it would rise to 20 percent rather than 39.6 percent. They don’t want a skyrocketing dividend tax rate to hurt the stock markets and they are probably correct in that concern.
If Congress remains in filibuster-gridlock over making any tax law changes, the Bush tax cuts may expire for everyone. It’s possible the qualifying dividend tax rate may return to the ordinary rate. That being said, it may be prudent to take as many qualifying dividends as possible before year-end. Will corporations pay out higher dividends in 2010 and reduce them in 2011? Will some investors sell dividend stocks by year-end to rotate into growth companies or other investment choices? Be on the look out for ways in which tax changes could influence the financial markets. Usually it’s better to sell before others do the same, which can be at lower prices.
What should small businesses do?
If you own a small business and use a C-corp as part of your structure, you may be interested in this special strategy to lower your taxes over time. If the qualifying dividend tax rate goes up to either 20 percent, or the ordinary tax rate in 2011, it’s probably a good move to pay yourself as much of a qualifying dividend that you can arrange. A qualifying dividend is limited to retained earnings, and it also depends on how much additional tax you are willing to pay in 2010.
Some small-business owners operate a C-corp alone or with a flow-through entity like a multi-member LLC (taxed as a partnership) or S-corp. The key tax strategy is to take advantage of lower C-corp tax brackets on the first $75,000 of income each year.
C-corps have double taxation: once on the entity level and a second time when dividends are paid out. The IRS forces you to pay dividends eventually. Paying the double-taxation in later years could result in a much higher tax rate. Get those qualifying dividend tax rates while you can.
In some cases, a small business owner may be able to pay a large amount to the owner before year-end and later on decide whether it’s a dividend or a loan. That part provides hindsight, so you can see how Congress acts first.
Business traders
Many business traders have the following conundrum: They want capital gains treatment to use up significant capital-loss carryovers, and they also want Section 475 MTM ordinary-loss treatment on new trading losses. If they knew which they would have, they could decide in advance. But they don’t, therefore MTM elections are a gamble.
Business traders do have a small hindsight window with Section 475 elections. New trading-business entities can wait to file an internal Section 475 MTM election within the first 75 days of inception. Conversely, existing taxpayers must file a 2011 election with the IRS (external) by the due date of their prior year’s tax return (April 15, 2011 for individuals and partnerships and March 15, 2011 for S-corps). That's 3.5 months of time for hindsight decision making.
If you defer large wash-sale losses on business-trading positions from 2010 to 2011, you can convert them to ordinary-loss treatment in 2011. You simply have to elect Section 475 MTM on time.
It also may be a smart tax move to defer unrealized tax losses to 2011, where they can be subject to Section 475 ordinary-loss treatment. Caution: You can’t use this strategy for investment positions; it’s only allowed on trading business positions. Section 724b and c disallows Section 475 MTM ordinary-loss treatment on investment positions contributed to a trading business.
Is year-end tax loss selling a good idea?
Isn’t deferring unrealized capital losses the reverse of normal year-end tax planning? Yes, it is, but it might be better in this unusual year-end situation. It may accelerate income into 2010, before possible hikes in 2011 if the Bush tax cuts are not extended.
You can sell a losing position before year-end, and if you decide it’s better to take the tax loss in 2011 — perhaps with Section 475 MTM ordinary loss election — you can create a wash sale deferral transaction for 2010. Simply buy back the same symbol within 30 days of the year-end sale, assuming you are okay to reenter this position market-wise. Use good trade accounting software to monitor your wash-sale losses.
If you have large capital loss carryovers and tax rates go up, those carryovers are of greater value to you, providing you can use them.
Our 2009 year-end tax planning articles are very helpful:
2009 year-end tax planning, part 1. Click here for blog article.
“Most years, taxpayers take every opportunity to kick the tax-can down the road, by deferring and accelerating income. This year and next should be different, because tax rates are likely heading higher for the upper and middle class starting in 2011.”
This article includes more information on Roth IRA conversions too.
2009 year-end tax planning, part 2. Click here for blog article.
Article headings in italics contain these updates:
Use good software for your year-end tax planning. It’s too late for software publishers to factor in all the possible outcomes with the Bush tax cut changes and it’s doubtful you will have good resources to help with year end tax planning.
Special 2009 tax breaks for homes and automobiles. Some of these breaks expired, others were continued and still others will be part of tax extender bills. Search online for the breaks you’re interested in.
Do NOL planning before year-end. For 2010 NOLs, the carryback rule reverts back to two years only (and 20 years forward too). The special allowances to carryback NOLs either two or up to five years back were for 2008 and 2009 tax years only. Don’t expect a five-year carryback allowance for 2010.
Don’t be aggressive on trader tax status determinations, the IRS may disagree. The IRS continues to turn up the heat on all taxpayers. Even if Republicans win more seats in Congress in the midterms, don’t expect the IRS to back down from its “close the tax gap” initiatives. New 1099-B reporting rules go into effect for 2011 with reporting of cost-basis and holding period.
An entity is helpful for trader tax status and it can give you a clean start in 2010. Same goes for 2011 too and the earlier you get started the better.
Either avoid AMT or embrace its historically low rate. AMT changes are unfortunately still wide open. Will Congress enact its annual AMT patch again? Hopefully, Congress won’t hold the AMT patch hostage inside a bigger Bush tax cut extension debate bill.
You can’t fool the IRS with offsetting positions.
Wash sales can be a royal pain.
Futures tax rates are headed higher too. Unless Bush tax cuts are extended.
Investment managers could lose carried interest tax breaks in 2011. President Obama’s 2010 budget sought repeal of carried interest tax breaks, but Senate Democrats couldn’t win a cloture vote to vote on that repeal. Carried-interest tax breaks and the SE tax loophole for S-Corps remain.
Year-end tax-loss selling is good for investors, but not needed for MTM traders.
The estate tax is coming back on radar screens again too.
Unless Congress acts quickly, the nasty federal estate tax comes back from the dead with a vengeance in 2011 for all taxpayers. The pre-Bush tax act exemption is puny ($1 million, 2002 exemption) and tax rates are very high too (top rate is 60 percent from 2001).
Hopefully, Congress will agree upon a lower estate tax rate and a higher exemption so middle-class income and other taxpayers are more protected. The estate tax rate was 45 percent for 2007 through 2009. The exemption was 3.5 million for 2009. I hope they can do even better.
As with the Bush income tax cuts, a new deal must be struck and a bill passed, because with no deal, the estate tax reverts to pre-Bush tax heights.
It’s been a confusing year for the families of taxpayers who passed away this year. First they felt lucky there was no federal estate tax in 2010, but then they realized they had to deal with income taxes on estate asset appreciation, whereas that was not a concern with stepped-up basis with the estate tax regime. Plus, most states didn’t repeal their estate tax for 2010, decoupling from federal rules.
2009 year-end tax planning, part 3. Click here for blog article.
“If you have a trading entity for 2010 and plan to use it for 2010 retirement plan and/or health insurance premium AGI-deduction strategies, you must take certain vital actions before year-end. You need to pay all earned income fees and officer salaries before year-end.”
Bottom line
Try to wait until you see the whites of Congress’ eyes before you pull the trigger on year-end tax planning maneuvers. Plenty of other investors may act on the same tax news and it could be a market-moving event. Use hindsight where available to beat others to the punch and to keep more options open. Hindsight is a wonderful thing and the IRS rarely gives you this privilege, so use it. There are plenty of good year-end tax planning articles in the media so read them too, since I focus more on business traders and investors. Also don’t forget to read about new recent tax cuts and take advantage of them too.
Forex "self IBs" are a bad idea
We recently learned that certain forex brokerage firms have told traders they should form an introducing broker (IB) and/or management company primarily intended to earn fees related to their own trading accounts, including retirement accounts. These schemes are trouble on a number of fronts, including tax and regulatory.
Tax problems
Although these schemes may generate some savings on transaction costs, they often involve “tax inefficiency,” higher tax bills and some serious tax penalties and pitfalls.
For tax purposes, if your own retirement plan pays you a fee of any kind, it’s considered a “prohibited transaction” for “self-dealing.” There are significant IRS penalties and rules for prohibited transactions. We cover these problems on our retirement page (see the July 15, 2009 article). Your retirement plan can not invest in your own company, either.
In addition to the prohibited transaction penalties, the IRS will treat the IRA payments to the IRA owner as “early withdrawals” generally subject to ordinary income tax rates. Plus, if the IRA owner is under age 59 ½, he or she is subject to a 10 percent excise tax penalty reported on Form 5329.
Traders lacking traders tax status (business treatment) are stuck with restricted Section 212 investment expense treatment on the advisory fees paid to their own management company. In the case of IB transaction fees, if the trader elected capital gains treatment on forex — the opt-out election — he or she may face capital-loss limitations.
Often the fee payments aren't deductible — in a retirement plan or taxable account — whereas the fee income is subject to ordinary income tax rates plus SE tax costs. SE taxes are 15.3 percent of the SE base amount ($106,700 for 2009 and 2010) and 2.9 percent (Medicare portion) thereafter.
The fee income is often reported by the broker on Form 1099-Misc (non-employee compensation) and this net income is reportable on a Schedule C (Profit and Loss from Business) subject to ordinary income tax rates plus SE taxes. If you don’t have any other IB clients besides yourself (and your retirement plans), we believe it’s not appropriate to take business deductions for this activity on Schedule C.
Many forex traders don’t qualify for trader tax status (business treatment), and they must use the more restricted Section 212 investment expense treatment, which includes miscellaneous itemized deductions limited to 2 percent of adjusted gross income (AGI) and not deductible for the alternative minimum tax (AMT). Section 212 doesn't allow home-office expenses and travel education expenses.
The higher transaction payments channeled back to you as IB rebates may cause forex losses that are limited to the capital-loss limitation (with the capital gains election) or wasted forex losses if you have negative taxable income without trader tax status or forex losses inside a retirement plan.
Bottom line: These IB and management company schemes are very bad ideas for tax purposes and they can lead to some serious trouble with the IRS.
Regulatory matters
The Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA) have new capital requirements for regulating forex IBs. We understand that some forex brokers are stopping this "self IB" scheme within a week or so. Hopefully, they won’t try to ship these schemes to their foreign-based platforms. December 22, 2009
Year-end tax planning, part 3 - compensation in entities
If you have a trading entity for 2009 and plan to use it for 2009 retirement plan and/or health insurance premium AGI-deduction strategies, you must take certain vital actions before year-end. You need to pay all earned income fees and officer salaries before year-end.
* If you have an S-Corp election, you should use formal payroll rather than administration fees. We can recommend a low-cost payroll tax compliance service provider. There is not much time left to arrange this before year-end. There are some benefits to payroll over fees, such as using year-end tax withholding through payroll to avoid under-estimated income tax penalties from earlier in the year. With payroll, you may qualify for unemployment insurance benefits too.
* If you have an LLC or general partnership filing a partnership tax return, you should use administrative fees rather than payroll. That skips payroll tax compliance and you can simply issue a check to the trading entity owner/workers who performed administration services (one or both spouses). We can prepare the 1099-Misc. in January. If you took distributions of sufficient cash from your entity during the year, after year-end we can reclassify some of those payments to administration fees. Just make sure you have taken out enough money to cover your AGI-deduction needs before year-end. Otherwise, you may wind up losing these deductions.
* Mini 401k plans (otherwise known as Individual or Solo 401k plans) must be established (opened) before year-end too. For S-Corps using payroll, the retirement plan should be in the name of the entity. For administration fees, the retirement plan should be in your individual names. You can fund these retirement plans after year-end, up until the due date of your 2009 tax return including extensions. If you are not sure which plan is right for you, just be sure to open one with a leading brokerage firm before year-end. It's free to do. You can roll it over to different plan in early 2010 after studying your options.
* Roth IRA conversions must be executed by year-end. Don't worry, you can recharachterize the conversion by Oct. 15, 2010. Learn more about these conversions in our articles below.
* Federal Q4 estimated taxes are due Jan. 15, but it's generally more favorable to pay the state Q4 vouchers by Dec. 31 for a year-end deduction (unless it triggers AMT).
For other useful year-end tax planning strategies, read Green's article in Fidelity Investor's Publication, "Tax Tips for Traders," http://personal.fidelity.com/misc/framesets/iwarticle.shtml?pagename=AT0911_tax Active Trader magazine (Dec. issue), and on our site http://www.greencompany.com/EducationCenter/GTTRecStratYearEndPlanning.shtml .
Special note on using a new entity set up in Q4 2009, or Q1 2010.
A year-end strategy with entities - using new taxpayer MTM elections and AGI deductions such as retirement plans - can only work if we form the entity and you open the entity trading accounts within the week. That was last week when we wrote it and it's now too late to deploy this new strategy for Q4 2009. It's now wise to consider an entity formation for 2010, with an early January start date. That's usually better than operating as a sole proprietor for part of 2010 and with an entity for the balance of the 2010. Click here http://www.greencompany.com/Traders/TraderEntities.shtml to learn more and get started. September 23, 2009
Year-end tax planning, part 1
Most years, taxpayers take every opportunity to kick the tax-can down the road, by deferring and accelerating income. This year and next should be different, because tax rates are likely heading higher for the upper and middle class starting in 2011.
You have two choices this year-end. Minimize 2009 taxes as best you can to safeguard cash flow — paying as little taxes as possible and maximizing your refund. Or, view your tax situation over the next several years and minimize taxes over the long term. That second choice may mean accelerating income into 2010 to pay more taxes at lower tax rates vs. higher tax rates later on.
There are few ways that investors can follow this cash out strategy — by cashing out long-term investments earlier than planned or with a Roth IRA conversion.
Tax rates are on the rise.
The Bush tax cuts are set to expire in 2011. President Obama promised no tax rate increases on the middle-class, so only the upper two marginal income tax brackets are scheduled (in the Obama 2010 budget) to increase to 39.6 percent from 35 percent and 36 percent from 33 percent. The highest long-term capital gains tax rate will rise 5 percent to 20 percent. The House proposed a further increase to 24 percent to help finance health care reform.
Democrats currently have the power to enact their vision of fiscal (tax) policy. A common Democratic belief is supply-side economics only benefit the upper class and don’t trickle down to the middle-class and poor.
Conversely, Republicans tend to believe supply-side economics lifts all boats, and lower tax rates spur entrepreneurial-led growth, which creates jobs and raises absolute tax revenues. It’s always been difficult to prove who is right on these points.
Congressional leaders and President Obama are under pressure to lessen the escalating budget deficit. At the same time, leaders are proposing new spending programs — stimulus for the recession, health-care reform, and financial reform regulation. In the Democrats view, raising taxes on the rich is required to “pay go” for this new spending.
Many pundits have said President Obama may need to break his promise on raising taxes on the middle class too. Presidential surrogates have not denied this when asked about it on Sunday talk shows.
For a good short history of income tax in the US, see http://www.infoplease.com/ipa/A0005921.html .
With taxes headed higher, consider cashing-out your taxable portfolio now.
With the long-term capital gains rate scheduled to rise to 20 percent in 2011 (from 15 percent), consider selling long-term capital gains positions before year-end 2009 if the markets are at high levels. Holding short-term positions into 2010 to gain long-term status is another potentially worthwhile strategy; you can sell these positions before year-end 2010 and avoid the tax increase in 2011. The goal is to pay more taxes at lower tax rates vs. higher tax rates later on.
Cash out your retirement funds with a Roth retirement account conversion.
This same concept can be applied to your traditional retirement plan accounts in connection with a year-end Roth IRA conversion.
Traditional retirement plans have different tax benefits from Roth IRA plans. Traditional retirement plans offer tax deductions on annual contributions and temporary tax-free income build-up in the retirement account until you take ordinary income taxable distributions at retirement age (as early as age 59 ½ and no later than age 70 ½ ). Roth IRAs and Roth Mini 401ks have a different tax bargain. Rather than getting tax deductions up front for contributions, the Roth accounts are tax free for life.
The key difference is the permanent tax-free status on the contributions. In the traditional plans, the funds are ultimately taxed in retirement, and tax rates are forecasted to be higher when you retire. Conversely, with the Roth plans, the funds are never taxed at retirement age. We advocate a simple strategy: make annual tax deductions to a traditional retirement plan during high-income years (when you pay taxes at higher tax rates) and in years when you have losses, convert to a Roth IRA, paying taxes at lower rates. The goal is to get more assets into the Roth accounts.
Roth retirement accounts are attractive to traders because their “stock-in-trade” (business) is managing a portfolio for (active trading) growth and unlike all other types of taxpayers, they can escape taxes on their stock-in-trade.
Many situations call for taking advantage of the tax deduction on a traditional retirement plan contribution too. Traders need to financially engineer earned income with a fee or payroll in their own trading entity, as trading gains are not earned income. That earned income triggers self-employment (SE) taxes. Generally, a traditional retirement plan deduction saves more in income taxes than the trader must pay in SE taxes.
In years with large trading losses, which lead to material business net operating losses (NOLs), it may also be prudent to soak up the NOL with a Roth conversion, instead of filing a NOL carry-back refund claim return. Full-time and very active business traders don’t need to worry about the IRS as much and NOL carry back returns are generally better for them.
Roth IRA distributions can also prevent Social Security benefits from being subject to income tax. If combined AGI is more than $44,000 (2009 threshold), up to 85 percent of Social Security benefits are subject to income tax. If under the threshold, social security benefits are tax-free. Roth IRA distributions can help taxpayers qualify for other middle-class tax breaks too (also dependent on AGI).
Can the Roth tax pledge be trusted?
Some traders tell me they worry about the government will eventually decide to tax the income build-up in a Roth IRA. It can’t tax the original contributions, as they were not tax-deductions and paid for with after-tax dollars.
I highly doubt this will happen. The government wants to provide incentives for saving for retirement. Curiously, to save on cash flow, the government recently announced a new program offering taxpayers an option to divert a portion of their tax refund to their retirement savings account, instead of getting a tax refund. It reminds me of states such as California issuing IOUs for tax refunds in 2009.
Everyone can convert to a Roth in 2010.
The last scheduled juicy tax break from the Bush administration is the Roth IRA conversion loophole in 2010, waiving the normal “income threshold” for 2010 only and making it possible for any taxpayer (even otherwise barred married filing separate taxpayers) to convert to a Roth IRA. For any other year, the income threshold rule only allows the Roth conversion option if the taxpayer has a modified adjusted gross income (MAGI) of $100,000 or less for both joint and single filings.
The biggest drawback to the Roth conversion is you need sufficient cash flow to pay the conversion income taxes; you can’t use the converted amounts to pay those taxes, either. But the 2010 tax break also allows you to pay the conversion taxes over two years; half of the income resulting from the conversion will be includible in gross income in 2011 and the other half in 2012. Taxpayer's in the upper-two brackets (being raised in 2011) can opt out of the two year tax deferral, so they don't pay taxes at higher rates.
Qualified plans (like a Mini 401k), a SEP-IRA, or SIMPLE IRA may be converted to a Roth plan too.
A conversion from a regular IRA to a Roth IRA is subject to tax as if it were distributed from the traditional IRA, but at least it isn't subject to the 10% premature distribution tax (which otherwise would not apply if the taxpayer was over age 59 1/2).
Roth do-overs
Suppose you convert to a Roth IRA before year-end, pay taxes on the converted amounts, and then face a large loss on the Roth trading account. It could be from actual active trading losses or the market dropping in value. This unfortunate loss on permanently tax-free money can’t be deducted on your taxes.
Not to worry, there’s a fix: The IRS allows taxpayers to change their minds. The process is known as a Roth IRA recharacterization. Learn more at www.irs.gov and search Roth IRAs.
Generally, a taxpayer has until Oct. 15 of the following tax year to undo a Roth conversion. For example, a Roth conversion completed in December 2009 may be recharacterized by Oct. 15, 2010. If a taxpayer already filed his or her 2009 tax return before Oct. 15, 2010, the return can be amended, but it’s better to wait with an extension.
Just ask your administrator to do a "recharacterization."
Bottom line on the Roth conversion strategies.
If you qualify for a conversion, try it in 2009. Maybe the converted assets will rise in value. If they drop in value, consider a recharacterization for 2009 and possibly converting again in 2010 with the lower asset values.
If you skip the Roth conversion strategy, you may wind up taking traditional retirement plan distributions subject to much higher tax rates. Also note that lower 60/40 tax rates on futures and electing forex traders are not available on retirement plan distributions.
Here’s another good article: http://www.nytimes.com/2009/07/18/your-money/individual-retirement-account-iras/18money.html?_r=2&nl=your-money&emc=your-moneyema2 .
Check back later this week for more year-end tax planning tips. July 15, 2009
Retirement-plan strategies - Important Update
Important Update on July 15, 2009.
Click here http://www.greencompany.com/Traders/TraderRetirement.shtml for Robert A. Green, CPA's 10-page blog article (in pdf format) on retirement-plan strategies for traders. This same article is being edited into a shorter version for Green's Business of Trading column in Active Trader magazine (October 2009 issue).
Traders Have Retirement Choices
http://www.moneyshow.com/video/video.asp?wid=4269&t=3&scode=013790.
..Short video produced by MoneyShow.com featuring Robert A. Green, CPA. "Author and trader tax expert Robert Green reviews some of the retirement account options available to today's traders and how some may allow traders to write off expenses and trading costs." Released: 7/16/2009.