US stock indexes are mixed in afternoon trading following a five-day rally; DuPont soars - 10/6/2015 1:31:09 PM | Newser

US stock indexes are mixed in afternoon trading following a five-day rally; DuPont soars - 10/6/2015 1:31:09 PM | Newser

Obama Tax Plan

Full List of Obama Tax Hikes

End-of-Year Mutual Fund Considerations

Article written by EricBank

If you are considering the purchase of mutual fund shares in the last couple of months of the year, you might want to time your transaction to avoid the fund's year-end distributions. Otherwise, you'll be paying the taxes on those distributions on April 15 of the following year, without any compensating benefit.

Mutual Fund Distributions

Mutual funds are pass-through entities: as long as they pay out substantially all of their annual income, they pass the tax obligation onto you, the shareholder. A mutual fund portfolio has three income sources:

1.    Dividends it receives on the shares it owns

2.    Interest it receives on the fixed income instruments it              owns

3.    Capital gains on the profitable sale of securities

Funds must distribute at least 90 percent of dividends and interest, and 98 percent of capital gains, to avoid excise taxes on the undistributed amounts.

Capital Gains Distributions

The convention is for funds to make annual capital gains distribution in November or, more likely, December. Funds normally announce the record date and amount per share a few weeks in advance. Shareholders at the close of the record date receive the distribution (and in taxable accounts, its accompanying tax obligation). The distribution is not prorated for the amount of time you held the shares beforehand -- you receive the full distribution. One day after the record date, the fund shares trade ex-dividend, their net asset values reduced by the distribution amount. The actual payment occurs a few weeks later, on the payment date -- a date that has no tax significance.

Tax Strategies

Here are some strategies to help you avoid the year-end tax consequences of mutual fund capital gains distributions.

• Ascertain the record date and distribution amount from the fund before buying shares late in the year. If the distribution amount is more than de minimus, wait until the ex-dividend date to make your purchase.
• Before the record date, sell shares that are priced below your acquisition cost. You can take a loss on those shares and avoid the capital gains distribution on them. 
• If you are an index trader, consider using index ETFs instead of index mutual funds. ETFs follow special procedures, called the creation/redemption mechanism, mainly to ensure that the share price is kept very close to the share net asset value. However, another benefit of this mechanism is that it frequently allows the ETF to shed profitable shares tax-free. Some index ETFs haven't paid capital gain distributions in years. Another factor for active traders: you can sell ETF shares at any time -- open-end mutual fund companies sell and redeem share after trading hours. Therefore, ETFs are more suitable to active traders, especially day traders.
• Because most mutual fund shares are held for investment, it makes sense to park those shares in an IRA or other non-taxable account. If you use a Roth account and follow the rules, you can avoid taxes on all withdrawals.
• Most stock dividends qualify for capital gains rates, and that includes stock dividend distributions from mutual funds. However, any distribution of stock dividends you receive from mutual fund shares that you hold for investment will be subject to ordinary tax rates if you fail to hold those shares for at least 61 days surrounding the ex-dividend date.

Tax Selling

Article written by EricBank

As the end of each year approaches, the opportunity arises to evaluate your portfolio, winnow out the laggards, reap some of the winners and perhaps select new investments. Part of this strategy is tax-related. Let's review the capital loss rules and the special tax breaks available to active securities traders.

Capital Gains and Losses

One thing that distinguishes the tax treatment of investors versus traders is the handling of gains and losses. The capital gains tax rates range from zero to 20 percent, depending on your ordinary tax bracket:

Tax Bracket	Over	To	Capital Gains Rate
10%	$0	$9,075	0%
15%	$9,075	$36,900	0%
25%	$36,900	$89,350	15%
28%	$89,350	$186,350	15%
33%	$186,350	$405,100	15%
35%	$405,100	$406,750	15%
39.60%	$406,750		20%

Figure 1 Capital Gains Rates -- Single Taxpayer

These rates apply to long-term capital gains (on holdings longer than one year) and on qualified dividends. Capital losses offset capital gains and up to $3,000 of ordinary income. You can carry unused losses forward to offset income in future years. Interest income is subject to ordinary tax rates.

Strategy

In a tax-selling strategy, you couple the sale of winners and losers so that the losses offset, and perhaps exceed, the gains. If you don't have enough losses to fully offset your gains, you might be able to use carryover losses from previous years. You also might hold off on selling winners until early in the new year to avoid income in the current year.

The wrinkle in this strategy is that any short-term capital gains are taxed at normal rates, which makes pairing to losses even more important. If you sell holdings consisting of long-term and short-term tax lots -- some of the purchases occurred more than a year ago -- you can juggle the selection of long-term and short-term gains to get the maximum benefit from your capital losses, especially if you also have ordinary income.

Mark-to-Market Rules

If you are an active securities trader, you can choose mark-to-market accounting, which will change the way you report gains and losses. Recall from our blog on wash sales that the IRS will consider you an active securities trader if:

.   You seek profits from daily market movements in prices

.   Your activity is substantial

.   Your activity is continuous and regular

As we have pointed out, MTM accounting treats your holdings as if you sold and repurchased them at the closing market prices on the last trading day of the year, thereby realizing gains and losses. If you take this route, your gains and losses are subject to ordinary tax rates, not capital gains rates. The main benefit from this rule is that you are not bound by the $3,000 cap on applying current year trading losses to ordinary income, as you would be by capital losses. Your trading losses are business losses and you report them as such. Of course, MTM accounting negates tax-selling strategies, since you, in effect, sell everything on the last day of the year.

One other benefit is that you can deduct investment interest expense in full -- it is not capped by investment income. This is useful when you have other sources of income in addition to your trading income, because you can offset these as well.

The Medicare Tax and Active Traders

Article written by EricBank

Most folks have to pay Social Security and Medicare taxes on their income. A 3.8 percent Medicare tax is levied on taxpayers who reach certain thresholds for modified adjusted gross income (MAGI) or net investment income (NII). Self-employed individuals must pay self-employment tax to cover their Social Security and Medicare obligations. The good news is active traders, as defined by the IRS, do not pay self-employment tax on the income from their active trading business. The bad news is that you don't accumulate Social Security income when you avoid self-employment tax, meaning you might receive very meager Social Security checks when you retire.

How the Tax Works

The IRS levies a 3.8 percent Medicare surtax on the lesser of NII or the excess of MAGI above $200,000 for individuals, $250,000 for couples filing jointly, and $125,000 for spouses filing separately. NII applies to net rental income, dividends, taxable interest, net capital gains, royalties, passive income and the taxable portion of nonqualified annuity payments. NII does not include tax-exempt interest from municipal bonds and withdrawals from retirement plans/pensions. Social Security benefits, life-insurance proceeds, veterans' benefits, and income from businesses in which you actively participate, are also excluded from NII. MAGI includes NII, W-2 wages and income from retirement plans.

Active Traders

As we always like to point out, to be an active trader as defined by the IRS, you must clear three hurdles:

·       You seek profits from daily market movements in prices

·       You maintain substantial trading activity

·       You are continuously and regularly active as a trader

The IRS examines the facts and circumstances surrounding your trading activity to surmise whether or not you are an active trader. They look at trade frequency, trade size and the amount of time you devote to trading, among other things. Your security or commodity trading needs to be a means of livelihood, not an avocation.

Mark-to-Market and 1256 Trades

As an active trader, you can elect mark-to-market accounting rules, in which case your gains and losses are ordinary, not capital. As an active trader, you don't pay self-employment tax on your active-trading income, whether or not you elect MTM. However, if you engage in Section 1256 trades, the income from these trades is subject to self-employment tax. Section 1256 applies to certain commodity contracts such as futures, FOREX and non-equity options. If you are a commodity trader who (a) regularly trades 1256 contracts and (b) is registered with a domestic board of trade, this results in a self-employment tax obligation on any resulting income. [See http://www.taxresourcegroup.com/library/memo/1284.html

Other Factoids

If you run your trading business as a Subchapter S, the income eligible for payroll taxes is not subject to self-employment taxes, but certain profit distributions are. If you run your trading business as a C corporation, NIIT would only apply to corporate dividends, and the disposition of ownership stock. You face many considerations when deciding how to set up your active trading operation -- Traders Accounting can provide you valuable advice and services to set you up in the optimal trading vehicle

Ah Mondays....

Traders' Exemption From Wash Sale Rules

Article written by EricBank

The U.S. tax rules contain a number of incentives for securities traders and dealers that are not available to investors. By "trader," we mean someone who is engaged in the business of trading securities (and/or commodities), as defined by the IRS:

.   You seek profits from daily market movements in prices

.   Your activity is substantial

.   Your activity is continuous and regular

The IRS applies a set of criteria to evaluate the facts and circumstances surrounding your self-identification as a securities trader, but let's assume for this article that you qualify. One of the perquisites you'll receive is the suspension from wash sale rules, but only if you adopt mark-to-market (MTM) accounting procedures. Let's take a closer look at wash sale and MTM rules to better appreciate the benefits a trader receives.

Wash Sales

Normally, investors must postpone tax-deductions on trading losses if they buy the same security 30 days before or after selling it. This applies to long and short trades:

Example 1: Long Trade

You buy 1,000 shares of ZZ Corp for $10,000 on February 1. On August 13, you sell the shares for $9,500, and normally you would use the $500 loss to offset other capital gains and up to $3,000 of ordinary income. However, you decide to repurchase the 1,000 shares on August 22. That makes the August 1 transaction a wash sale. You must now instead add the disallowed loss of $500 to the cost basis of your August 22 shares, which has the effect of postponing the tax benefit from the loss until you later sell those shares.

Example 2: Short Trade

You borrow and short 500 shares of YY Corp, receiving $5,000 in proceeds that your broker locks up in your margin account. To your horror, the stock starts rising, and you buy it back to cover the short sale one month later, on June 7, for $6,000, a $1,000 loss. The loss will be subject to the wash sale rule if you short the stock again within 30 days of June 7.

Wash sale rules also apply to if you reinvest a mutual fund dividend within 30 days of selling the mutual fund shares for a loss. In addition, wash sales rules apply to repurchases (or re-shorts) made in a retirement account within 30 days of a loss on the same security in a taxable account.

The IRS helpfully points out in the instructions to Form 4797, page 2, that, as a trader of securities, you can avoid the wash sale rules by marking to market.

Marking to Market

You can inform the IRS that you've elected mark-to-market accounting by including a statement with your tax return stating:

1.    You are making the MTM election under IRC 475(f)

2.    The tax year when the election is to become effective

3.    The name of your trading business

MTM accounting calls for you to act as if you sold and repurchased all your holdings at the closing market prices on the last trading day of the year. In effect, you are realizing an ordinary gain or loss on positions that otherwise would have unrealized gains and losses. You'll pay the current-year taxes on the phantom sales and use the MTM prices as the new cost bases for the securities going into the new year.

Traders Accounting will be happy to assist you to set up as a securities trader and handle all your MTM processing.

Tax Man

Traders Taxed at Unfair Rate?

I see in an article today that Obama is expected to re-suggest a cap of 28% on the value of a deduction for rich people making over $100k a year. He feels it is 'unfair' that someone in the 39.6% tax bracket to actually get a deduction valued at that rate rather than at 28% like someone in the 28% tax bracket would get. Maybe I am missing something but is it only worth 39.6% because they are taxed at 39.6% rather than the 28% bracket. Suggestion: Lower the tax bracket to 28% then the rich would only get a 28% value like everyone else. Then we all can agree that a given tax deduction is worth the same for everyone. Then rich people would not be getting an unfair advantage. BTW - when did the definition of a rich person get lowered to $100,000 from say $1 million dollars like it was many moons ago. Should not the definition be going up with inflation?

Trader Tax Freedom Day

It appears that April 18th will be the so-called Tax Freedom Day this year. The average tax source walking the street on that day will feel a shutter then some relief because they will have earned enough to pay their 'fair' share of the federal, state and local 'investment' in society. It was April 13th last year - so in breathing days that is almost a 5% increase. Thought for the day: Has your value received from your elected officials and governmental employees increased by 5% over last year? Thinking that is not too bad? Well, if the borrowed debt that you should pay, rather than your kids will pay, is included then Tax Freedom Day would occur on May 9th. That extra 21 days would make the increase over 25% from last year. In 1945 while World War II was raging, Tax Freedom Day occurred on May 12th. So in a time of peace we are spending as much as we did on a world war. Some thoughts: Are we now spending more in taxes than on necessities such as food, clothing, and housing? Will we be classified as surfs once the effective date approaches the 50% mark, i.e. July 1st. Will we need to rename the national holiday of July 4th to Dependence Day?

What do Day Traders Do?

Before the internet became a feature in most households in the US, people interested in trading stocks or any other type of financial instruments had to go through a professional stockbroker. However, these traders, called speculators, can now make trades from the comfort of their own homes and on their own schedules. For that reason, a method called day trading has become a viable way for speculators to make money.

Day traders buy and sell stocks within the same trading day. The motive of day traders is purely profit. There are two distinct styles of day trading, and the difference between them is the amount of time that the trader holds on to the investment.

Short-term trading, also known as scalping, is completed in a matter of seconds. While these trades usually only amount to a fraction of a cent, day traders might complete many in a day, and the profit adds up quickly. Scalpers will usually make a slightly higher bid on stocks to ensure that they own it, and then they will sell it for a higher price than they bought it, which is often so small it is barely noticeable.

Longer-term day trading, called swing or position trading, involves holding onto the stock throughout the day and waiting for the price to go up enough to sell. However, day traders will always sell in the same trading day.

The method that day traders choose to use depends mostly on their personality and how willing they are to watch the stocks throughout the day. Some day traders will make many small trades all day long, while others might just make one highly-profitable trade every day. However, no matter which method day traders use to handle stocks on a given day, their main goal is profit.

Understanding Personal Property Limits For Home Owner’s or Renter’s Insurance

If you are a day trader, you probably have a few computers and other tech gadgets and software in your home. If you work at home or run your trading business from your home, the number of technology items will go up exponentially. Before something happens it is important to look at your home owner’s policy with an eye to the personal property limits. Then compare how your personal property insurance limits stack up to the reality of the technology and other higher ticket items in your home.

What is Personal Property Insurance?

Your homeowner’s insurance policy covers several insured areas. Some of those areas include:

·         Structural Insurance that covers damage to the home’s structure,

·         Liability Insurance for accidents that happen on your property,

·         Personal Property Insurance that covers the items filling your home.

Personal Property Insurance covers your possessions. This is for things that belong to the homeowner or to others that live in the home. Your homeowner’s policy will list your Personal Property overall payout value. This is the amount that you would be paid if you lost everything inside the home if there was a fire, or robbery and everything was cleaned out. If only some specific items are taken or damaged, like for instance your computers, there are specific limits to what the policy will pay.

Personal Property Limits

Do you even know what the limits are on the personal property coverage for your home insurance policy? Take a minute to look through your policy, and then do a quick tour of your house. If you have a video camera, use it to capture everything that is visible. Then download a copy to your offsite data storage. This would be handy if you ever have to file a claim. As you look around, make a list of the TVs, and their type, the Wii, the computers, digital cameras, printers, Blackberry’s, and IPods, etc.

Home Office

If some of these things are for your home office, write those on a separate sheet of paper. Make sure you add in office furniture, and supplies, as well as items like paper shredders, flash drives, and even the extra printer ink you keep on hand.

Now ask yourself these questions:

·         What would fire or water do to your business files?

·         If something happens to all that stuff…can you work?

·         How long would it take to get up and running again?

·         Could you replace everything with the standard home office personal property insurance policy that covers up to $1000 for a home office?

I’m betting the answer is no to the $1000. But that is the average amount of standard coverage for the items that are used as part of your home office if there is a loss. There are riders that can add to this amount. But you will need to talk to your agent, take an inventory of the items you utilize for your office and don’t forget the furniture and supplies. These small items can add up quickly if you keep large quantities of items like printer cartridges and reams of paper.

If your home office is heavy on technology, you made need a computer rider, as these items are restricted on the payoff value. It’s important to talk to your agent and figure out what you have, and what you might need, just to cover the home office.

Other Needs

Remember the Personal Property amount is supposed to cover all the pots and pans, appliances, clothes, furniture, and everything that isn’t part of your structure. Don’t forget to think about jewelry, art, antiques, all of the things that you own that you would have to replace with the dollar limit on your policy.

Replacement VS Actual Cash Value

As you read your insurance policy to see what your personal property coverage limits are, pay close attention and figure out if your personal possessions are covered with the replacement, or actual cash value. This can make a big difference in actually being able to afford replacing everything. For example, the actual cash value might be less than a $100 on that three year old computer, but it could cost you over $700 to replace it. Make sure you know what your insurance policy provides, and how it would cover all of your personal property, especially the property that allows you to make a living.

Survey finds working from home desired by many office workers

A recent poll finds that those running a home based business have an opportunity that many office workers would treasure very highly.

While many companies allow employees to work from home on a flexible basis, others are much more rigid, which has some workers eager for the chance to work remotely.

According to a recent poll by the computer company Citrix, 64 percent of people who cannot work from home once a week would give up something else in order to do so. While 32 percent admitted they would sacrifice lunch breaks, 25 percent would give up drinking and 20 percent would cut coffee from their lives.

The reasons for wanting to stay out of the office were extremely varied. Nearly 75 percent of office workers said there was a frequent office activity, such as a baby shower, staff photo or costume contest, that they wanted to avoid. Others complained about some of the attitudes or behaviors of their coworkers.

"These findings show what all of us who work in offices know - life at the office can often be challenging," said Kim DeCarlis, vice president of corporate marketing at Citrix. "There are plenty of tools and technologies today that empower people to do their jobs from any location."

People have even resorted to some very unusual excuses to work from home. Respondents to the survey said they gave reasons such as "It's Elvis' birthday", "Gas is too expensive" and even "I'm having toenail issues" in order to work from home on a particular day.

The many issues highlighted in this survey show a number of advantages traders may have while running a business from home. While it's necessary to set boundaries to avoid being distracted or overworked, working from home can be a positive experience.

Organizing a home office

It may be difficult to stay organized when running a business from home, but small business owners and self-employed individuals can take a number of steps to keep the office orderly.

A disorganized office may collect personal items as well as professional ones, resulting in a cluttered space that makes it hard to stay focused and productive. One measure to stay on top of the situation is regularly clearing out in-boxes or the equivalents. That includes any paper files, mail, e-mail and phone messages and other regular communications. Devoting part of one day each week to such processing can help avoid falling behind.

Similarly, try to avoid leaving files or other items in briefcases, bags or other containers temporarily when it is not necessary. This scatters them around and makes it harder to stick to any system of organizing. Tools and regularly used items can be categorized by how often they are needed and stored more or less conveniently in accordance with those priorities. Similarly, messages can be divided based on a combination of importance and urgency.

That can make it easier to manage time effectively and separate physical objects related to work. While those in the day trading business do not necessarily have or need many physical items to run their businesses, the same principles can apply to information stored on a computer or other aspects of trading.

Offices sometimes get messy as irregular items are brought in for convenience. When setting up, set aside space for phone chargers, external hard drives and other miscellaneous necessities. Use shelves and furnishings to help organize. If there are too many loose electrical and other cords and plugs, consider tying some together into bundles. This can make it easier to run them beneath or behind furniture and avoid tripping.

Requirements for successful self-employment

Running a business from home as a self-employed individual requires a number of qualities for success. Starting a business from the beginning and keeping it operational over time is a challenge. A large percentage of startups fail. For those who are self-employed and do not have employees working for them, there is one less challenge, at least. They do not need to concern themselves with managing other people, recruiting them, paying them and all the various tasks associated with having employees. Human resource laws and regulations alone constitute a significant investment of time as small business owners need to learn about them. There is a trade-off for the self-employed, however. They must be able to run their entire business personally. It may be helpful to supplement personal expertise and abilities by hiring professional assistance with specific tasks, such as accounting. When first starting a business, professional assistance might help with tasks such as registering the business name, deciding what kind of corporation to form and taking the proper steps to create it. Traders might want to form a C-corporation or limited liability corporation, depending on their circumstances. Business tasks for the individual There will likely be many things they must do themselves. Entrepreneurs may need to make decisions about equipment and software, set up their offices, talk to clients and do research on their chosen fields. Those in the day trading business will need to develop a method of choosing investments and tracking their profits and losses, for example. They may find themselves performing a significant amount of research into possible trades and dealing with the tax and accounting aspects of trading.

Meeting the challenges associated with working at home

When running a business at home, it is important to maintain a professional mindset in the office in order to stay productive.

In order to establish a business and run it successfully, it may help to focus a bit on the office itself, at least early on. The size of a home office generally does not matter, according to Entrepreneur, as long as it has the minimum space needed for a computer and any other resources that must be used continuously. For some people, a space with minimal decoration and fewer furnishings might help to limit distractions and differentiate working space from living space. Others might prefer to keep relaxing decorations or items that inspire them.

Ensuring that the office is not used for any other purposes can be a big help with distractions, but also has other advantages. Family members, neighbors and friends may misinterpret working at home to mean that someone is always available, leading to a high number of interruptions. A separate room can help when the time comes to lay down ground rules for when business hours are and when social calls are acceptable.

It also means that, if other activities are taking place elsewhere in the home, there will be no conflict over use of space and noise should be less of an issue. If it becomes necessary to meet or just call clients, that kind of privacy and professional atmosphere may also be important.

Operating a home based business can be tricky for the inexperienced, as they generally have to adapt to a large number of differences. Even if they do not seem significant when examined individually, these changes can affect productivity a great deal.

Handling home businesses post-recession

Those running a home based business may be struggling to meet the challenges they face in recent years, during the economic recession and slow recovery.

Expert Jim Muehlhausen told Home Business Magazine that there are several things small business owners should keep in mind. One is to avoid dramatic changes. While the volatility and difficulties of the economy may encourage many self-employed Americans and small business owners to implement major changes in how they operate, he warned that it is generally a better idea to focus on business fundamentals.

Quickly-changing economic conditions are likely not as important to business success as operating efficiently and constructing a sound business model, the expert suggests. Paying too much attention to the broader economy may actually distract a business owner from more pressing concerns that he or she should be focusing on.

If business is slow or exceptionally difficult, it may also be a good opportunity to plan further ahead. There may be more time to devote to that sort of activity at the moment, and the business may perform better in the long run if it is prepared to act in a more fully recovered economy.

In the day trading business, this advice might mean avoiding any abrupt changes to trading strategies. Suddenly accelerating or slowing the pace of trades might be such an alteration, with potentially damaging consequences.

Balancing family and the home office

Parents who are running a business at home may need to deal with a few additional challenges that other small business owners and self-employed Americans do not face.

Operating individually or running a small business takes up a significant amount of time. This is particularly true in the early years, when procedures and practices are still being developed and established. While individuals may have some ability to set their own hours, they may also find themselves working longer than they expected or otherwise altering their schedule to suit the job.

Those in the day trading business might want to ensure they are aware of breaking financial and economic news at certain times in order to act on time-sensitive opportunities as quickly as possible. If children are at school or otherwise out of the house at convenient times, then there may be no problem. If it is during the summer or children are home, however, then it may be more challenging to balance work and family.

It may be helpful to explain the work being done at times, although the extent must be tailored to their level of interest and age. Talking about the work and the business can be educational and even enjoyable for kids, experts told the Wall Street Journal. At the same time, however, there should be a clear boundary between work-time and family-time.

That can be hard to define when working at home. Having a dedicated office, setting regular hours and other steps that establish a routine can help. This can also reduce stress on the individual, providing a clear period for relaxation.

                                                     Day traders day dream....

Small business owners confront stress, financial challenges

Running a small business is three times more stressful than raising children, according to a new report.

Small business owners frequently give up free time, exercise and other priorities in order to devote more energy and time to their business. The combination of effort and importance businesses typically involve for their owners also makes them more stressful than personal relationships or personal finances, according to Bank of America's first Small Business Owner Report.

"We know how much small business owners give up to make their businesses successful, but despite their sacrifices, they are still optimistic about the future," said one executive. "Therefore, we believe that the financial services industry, the business community and the general public must continue to take steps to support the growth and success of our small business sector."

The country's small business owners typically underutilize some financial tools, despite the fact that they consider financial advice a valuable asset. Those running a home based business may find that financial expertise can be just as helpful as it is for brick-and-mortar operators.

Because of their limited size and expertise, small businesses often lack the internal resources to handle a number of financial matters, such as keeping track of relevant tax provisions and accounting rules. Consulting an expert can significantly enhance a business' ability to run profitably. This is particularly true for the financially-focused day trading business.