TRADING

Year-End Tax Planning for Traders

Tax planning is very tricky this year with the fiscal cliff. Most people hope Congress and President Obama will act soon—after the November election and before year-end—to bring clarity to the fiscal cliff, especially making a decision about the crucial Bush-era tax cuts. In this interview with trader and investor tax expert Robert Green, CPA, we discuss the several things traders can do to minimize their taxes this year and what you need to know about how taxes will change come January 1, 2013. We also discuss trading within a business entity (LLC or S, or C-Corp) and the basics of choosing which entity to form.

Tim Bourquin: Hello everybody and welcome back for another interview for a Trader Talk Podcast. Thanks for joining me for this. Today, it's Robert Green. He is a tax expert, a CPA. He speaks at The Traders Expo. He's going to be at the Traders Expo next week in Las Vegas. He's got a couple of sessions there we'll talk about in a little bit.

But I wanted to get Robert on the phone because I always like to have a phone call with Robert at year-end to talk about what's coming in 2013 and things that maybe you can do before the end of the year and things to think about, start thinking about for next year as well. So first of all, Robert, thanks for joining me on Skype today.

Robert Green Thank you very much, Tim. Good to speak with you again.

Tim Bourquin: Well, Robert is trying to clean up here from hurricane Sandy there in Connecticut so he's been out of pocket here for about a week so I appreciate, Robert, you getting on the phone. I'm sure you got a lot of catching up to do, but let's talk about that things that traders should consider here. I know it's a broad question but what kind of things should traders be doing here at year-end to prepare for next year?

 
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Robert Green Well, the big issue is the election, which is tomorrow. When you distribute this, it's over. I voted before I left Connecticut. That's got a big effect on what's going to happen with the taxes, although most likely it won't be a mandate election and it will be a divided Congress and they have the fiscal cliff issues. Every year normally when you do tax planning, the name of the game is what income can I defer to next year? What expenses can I accelerate? Let me lower my taxable income, lower the taxes that I owe Uncle Sam, and that constitutes good tax planning.

So you do tax-loss selling, you avoid wash sales, you accelerate expenses, retirement plan deductions for your trader tax status business. You do those types of things, but this year it may be turned upside down. Why? Because of the fiscal cliff and because of the Affordable Care Act, otherwise known as Obama Care. That 3.8% tax on unearned income, the Medicare tax on unearned income for the first time starts on January 1st. That's not part of the fiscal cliff, that's a done deal.

Tim Bourquin: All right, Bob, so I know we've got a lot of unknowns here in terms of the fiscal cliff and what's going to happen with the Bush era tax cuts and whether or not those are going to stick. It sounds like it's about tough a time now to do any tax planning as it has ever been, right, with what's going on right now?

Robert Green Well, absolutely. I think we should wait until the middle of December and hopefully this current Congress and President in the lame duck session before the next Congress and President sits in January will decide the Bush era tax cuts issue and the AMT patch, that's another real big one before year-end.

Because the Bush tax cuts expire at year-end and the rates skyrocket up so taxpayers need to know hey, am I doing tax loss selling or am I doing tax gain selling, that's really the basic difference. Should I do the Roth IRA conversion or not? The Roth IRA, you can do it. If it's not a good idea, you can reverse it but you can't reverse your sales of securities.

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