Day 2

Question 1

IRC 1256 Contracts

Answer 1

a type of investment non equity options = options on futures

Question 2

Forex Part 1

Question 3

Forex Part 2

Question 4

Securitites defined

Question 5

Gold/Silver

Question 6

Trader in Securities Filing Options

Question 7

2 benefits of schedule c

Answer 7

only need to add few forms to tax return - shows expenses associated with trading business - reduce cost of filing

Question 8

Schedule C Limitations Part 1

Answer 8

not 7.5% now it is 10% AGI

Question 9

Schedule C Limitations Part 2

Question 10

Solutions to Schedule C Limitations

Question 11

Flow Through Entity

Question 12

Limited Liability Company

Answer 12

not good for single people, real estate, if living in CA due to LLC company tax, if living in NY

Question 13

S Corp Small business corporation

Question 14

C Corp Coporation

Answer 14

worst selection for traders all get taxed regular

Question 15

6 Advantages of Entities

Answer 15

6. reduced rate of being audited

Question 16

Why form own entity? part 1

Question 17

Why form an Entity? part 2

Question 18

narrow based index

Answer 18

An index which contains a small group of industry-specific stocks consisting mostly of future contracts. A narrow-based index will not consist of more than ten of these industry-specific stocks. For example, a narrow-based index may include stocks from the auto industry, energy industry, or construction industry.

Question 19

futures tax benefits 1256 contracts

Answer 19

• 60/40 split - can claim losses 3 years back regardless of MKM contracts or not, but only for 1256 gains -going back is default. need to elect if going forward with losses. or else, losses is lost. -3000 limit toward current year taxes is still there unless do MKM - people who trade futures do not elect MKM because if you do, then will lose the 60/40 split - no wash sale rules reporting is easy. just report bottom line result - form 6781

Question 20

IRC 988

Answer 20

The main benefit of IRC 988 is loss protection. If you experience net losses through your year-end trading, being categorized as a “988 trader” you can count all of your losses as “ordinary losses” instead of just the first $3,000 as in the 1256 contract. Comparing the Two IRC 988 contracts are ideal situation for losses. 1256 contracts, offer more savings for a trader with net gains - 12% more. The most significant difference between the two is that of anticipated gains and losses. you have to decide before January 1 of the trading year. Most traders will anticipate net gains (why else trade?) so they will want to elect out of their 988 status and in to 1256 status. To opt out of a 988 status you need to make an internal note in your books as well as file with your accountant.

Question 21

ordinary loss

Answer 21

Any loss incurred by a taxpayer that is not considered a capital loss. Ordinary losses can stem from many causes, including casualty and theft. Ordinary losses that are larger than a taxpayer’s gross income for the year can leave the client with zero taxable income on their 1040. Ordinary losses are not subject to the $3,000 annual limit that is imposed on capital losses; they can be for any amount.