Trader Tax Form Information

It’s tax season for everybody. We’re not tax accountants, but we want you to make smart choices about your taxes just like you make smart choices about your trades.  

This article will help you ask your accountant the right questions to make the process easier. 

Don’t forget, taxes and IRS forms are due Monday April 18, 2016! So, what additional forms do you need, if you are preparing your own taxes?

Normally, individual income taxes are due on April 15. This year, Emancipation Day is an official public holiday in the District of Columbia being observed on Friday, April 15. The holiday normally falls on April 16. But the observation on the 15th is what’s postponing the tax filing date.  So, according to the IRS Revenue Ruling 2015-13, you get an extra business day (and the weekend) to wrap up your taxes.  

Use caution in waiting until the last minute though, because your accountants are not too happy that they have to give up yet another spring weekend to do your taxes! Although, if you are one of those traders who are multi-talented and like to prepare your own taxes, here are a few tips to help you with some trading related forms along the way.

Form 1099-B: Brokers issue Form 1099-B to report your trading gains and losses to you and some of that information is also reported to the IRS. This form helps you prepare your tax return. However, be sure to review it closely for accuracy, particularly the line items that say “undetermined” or “basis not reported to the IRS.” You may need to fill in the missing information. If you trade on dough, and are not sure where to obtain your Form 1099-B, watch our tastylive tax segment where we walk you through the steps.

Form 8949:  Securities gains and losses must first be reported on Form 8949, which then flows onto Schedule D with capital losses limited to $3,000 per year that can be applied against ordinary income. Any remaining capital loss is carried over to the following tax year. 

Form 1040, Schedule D: Schedule D is the form where most people report capital gains and losses. As of 2011, the IRS has required Form 8949 in addition to Schedule D for some taxpayers. If you are an active tastyliver, you’ll need both.

Form 6781:  If you trade Section 1256 contracts, like futures, you don’t use Form 8949 for that activity. Instead, you take the net trading gain or loss from your Form 1099-B and enter that amount in summary on Form 6781 (unless for your 1256 activity you elect Section 475 trader tax status meaning you’re conducting a trading business). If you elect 475 treatment, you’ll need Form 4797. 

Form 4797:  Business traders, who elect and use Section 475 on securities, report their business trades in detail (not summarized) on Form 4797 Part II ordinary gain or loss treatment. There are no wash sale loss computations and no capital loss limitations. 

Form 1040, Schedule C: This is for taxpayers who treat their trading as a sole proprietor trading business. Non-trading businesses report revenue and expenses on Schedule C. However, traders that qualify and choose trader tax status https://www.irs.gov/taxtopics/tc429.html report only business expenses on Schedule C. Trading gains and losses are reported on the forms noted above, depending on the type of products being traded and the overall tax situation. This is only for sole proprietor trading businesses. (Trading businesses that are being conducted via an entity will require different forms, for example, Form 1065 for a Partnership or LLC or Form 1120S for S-Corporations.) 

Form 4868: If you plan to extend your 2015 individual income tax return, you’ll need to file Form 4868 by Monday April 18, 2016 with the IRS and you may need to file a state extension, depending on what state you live in. (Remember: if you plan to make the Section 475 marked-to-market trader tax status election for 2016 https://www.irs.gov/taxtopics/tc429.html, this is the time to make that decision because you will need to submit that with your extension, or your tax return, if you are filing on time.  Don’t take the election lightly though. And be cautious on any Section 1256 contracts, because you will lose the 60/40 capital gains tax rate advantage if your election includes them.  Worth noting, your 475 elected income is not allowed to offset your prior capital loss carryovers. If you are considering the election, you should seek advice from a tax professional prior to making any election.) 

There are a number of other forms you’ll need to complete your taxes, of course, but we just wanted to flag the few that you may need as an active tastyliver. Good luck trading and remember to be kind to your accountant as the week rounds out!