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RJS LAW: San Diego Tax Attorney | IRS | FTB | CPA | California

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    • Ronson J. Shamoun, ESQ., LL.M.
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  • Home
  • About
    • Ronson J. Shamoun, ESQ., LL.M.
    • Chandara Diep, ESQ., LL.M.
    • Joseph Cole, ESQ., LL.M.
    • Devon J. Arabo, ESQ., LL.M.
    • Lauren Suarez, ESQ., LL.M.
    • Daniel Huynh, Esq., LL.M.
    • Christopher Engelmann, ESQ., LL.M.
    • Leslie Miranda, Esq., LL.M.
    • Brian M. Malloy, Esq.
    • Steve S. Mattia, Esq.
    • Sam Imandoust, ESQ., LL.M
    • Kaveh Imandoust, JD, MBT, CPA
    • Andrea Cisneros Valdez, Esq., LL.M.
    • Martin Schainbaum, ESQ., LL.M.
    • Dod Ghassemkhani, ESQ.
    • Vincent Renda, Esq.
    • Pedro Bernal, Esq.
    • Melanie M. Shamoun
    • Sandie Portilla
    • Renae Arabo
    • Sabri P. Shamoun
    • Hilary Dargavell
    • Lupita C. Torres
    • Jewell Cornejo
    • Kesia Belford
    • Remy Hogan
    • Judith Jeremie
    • Marley Smith-Peters
    • Melanie Chan
    • Tanner DeMera
    • Charles Ecker
    • Anna Gurr
    • Asia Smith
  • Practices
    • ERTC – Call Us Before It’s Too Late!
    • Tax
      • IRS TAX MATTERS
        • IRS Appeals
          • IRS Appeals Process
          • Contesting an IRS Levy
          • Why Retain RJS LAW for IRS Appeals
          • 4 Tips For Navigating The IRS Rapid Appeals Process
        • IRS AUDITS
          • IRS Correspondence Audits
          • What are IRS Field Audits?
          • Initial IRS Compliance Center Audits
          • IRS Office Audits
          • What happens in an IRS Audit?
          • Taxpayer Rights Under IRS Publication 1
          • IRS Warns Taxpayers About Scam
        • NOTICES
          • IRS Notices
          • IRS Letters
          • FTB Notices
          • Avisos en Español
        • IRS Collections
          • Avoiding and Eliminating IRS Tax Liens
          • Collection Due Process Hearing
          • CP 501 – IRS Notice
          • Failure to file a tax return: What happens?
          • How the IRS calculates interest
          • How to get a tax levy released
          • ACS – Automated Collection System
          • IRS Collections Process
          • IRS Interest Abatement
          • IRS Revenue Officers
          • Jeopardy Assessments and Jeopardy Levies
          • National Tax Agencies
          • RJS LAW Approach to Collections
          • IRS Statute of Limitations on Collections
          • Streamlined Installment Agreements
          • Tax Penalty Abatement
          • Taxpayer Assistance Orders
        • IRS Payroll Tax
          • Independent Contractor Reclassification Audits
          • IRS Forms 940 and 941
          • IRS Trust Fund Interviews
          • Payroll Tax Liability Payment Options
          • Trust Fund Recovery Penalties
        • IRS Wealth Squad
        • Offer in Compromise & Tax Settlements
          • OVERVIEW OF OFFER IN COMPROMISE PROCESS
          • The Offer in Compromise Process
          • Appealing an Offer in Compromise
          • How does the IRS evaluate an Offer in Compromise
          • Offer in Compromise and Dissipated Assets
          • Offer in Compromise Requirements
          • Pros and Cons of an Offer in Compromise
          • Why Choose RJS LAW?
          • Offer in Compromise Alternatives
          • Actual IRS Offer in Compromise Results
      • STATE TAX MATTERS
        • EDD California Payroll Tax Lawyer
          • EDD Investigations
          • EDD Collections – Liens, Levies, and Garnishments
        • CDTFA – California Sales Tax
          • California Sales Tax Appeals
          • California Sales Tax Audits
          • California Department Of Tax And Fee Administration – CDTFA
        • California State Tax Matters – California Franchise Tax Board | FTB | EDD
          • California Residency Audits
          • Discharging State Income Taxes in Bankruptcy
          • State Tax Practice – Outside of California
      • CRIMINAL TAX ISSUES
        • Criminal Investigation Division
        • IRS Criminal Investigation Division Tactics
        • Criminal Tax Defense – Tax Crimes
        • Currency Transaction Records & Suspicious Activity Reports
        • IRS Methods of Proof: Tax Fraud and Evasion
        • Methods IRS Agents Use to Locate Assets
        • IRS Special Agent Visits
        • Are You a Criminal Investigation Target?
        • Criminal Tax Attorney vs. White Collar Defense
      • CORPORATE TAXES
      • TAX COURT LITIGATION
      • Innocent Spouse Relief
    • International Tax
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    • Trust, Estate & Probate Litigation
    • Trust & Estate Administration
    • Probate
    • Bankruptcy
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      • Landlord Tenant Law
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  • Tax Institute
    • 8th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 28th, 2023
    • 7th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 15th 2022
    • 6th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 5th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 4th Annual USD School of Law – RJS LAW Tax Controversy Institute
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    • RJS Law Donates Billboard to the Girl Scouts
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How Traders Write Off Large Losses – Mark to Market Securities Tax Code

Mark to Market Securities Mark to Market Securities Tax Code

One of the common problems we see in our tax law offices in San Diego and Orange County has to do with investors and financial traders who have improperly set-up their business and consequently are being audited after taking deductions under Section 475 of the mark-to-market securities tax code.

The IRS established Section 475 of the mark-to-market securities tax code specifically for financial traders. Under ordinary circumstances, investors are stuck with a standard capital-loss treatment which means a maximum $3,000 net capital loss which can only be applied against ordinary income. It can take a lifetime to write off losses in this scenario. But under Section 475, capital losses can be taken as a whole and applied to an entire tax return, even if it’s a joint filing.

It sounds good but, as in most cases involving the IRS, qualifying for this type of tax treatment is complicated and without the help of qualified assistance by people like the tax law experts at RJS LAW who understand Section 475, can trigger tax audits through improper set-up and subsequent deductions which may be disallowed.

To qualify for tax treatment under the Section 475 mark-to-market code, traders have to qualify under the rules for “trader tax status.” This is a set of guidelines established by the IRS to determine who is, and who isn’t considered a business trader.

Caution: Business traders have to declare their intentions to elect to file under Section 475 before April 15th, every year. If you don’t make your election before then, capital losses cannot be treated as ordinary business income. New entities established after April 15th can elect Section 475 MTM for the rest of the current tax year if the entity files an internal Section 475 MTM election within 75 days of inception.

Business traders qualifying for TTS have the option to elect Section 475 MTM accounting with ordinary gain or loss treatment in a timely fashion. When traders have negative taxable income generated from business losses, Section 475 accounting classifies them as unrestricted and unlimited ordinary business losses and net operating losses (NOLs).

The advantages are obvious. Ordinary trading losses can offset all types of income (wages, portfolio income, capital gains, etc.) for you and your spouse on a joint filing, whereas capital losses may only offset capital gains. Business ordinary trading loss treatment is the biggest contributor to tax refunds.

But it’s extremely important to know the rules inside and out. A wrong election or deduction could land you in hot water with the IRS. For example, you’re entitled to segregate investment positions that aren’t subject to Section 475 MTM treatment at year-end, meaning you can defer unrealized gains on properly segregated investments. You can have the best of both worlds — ordinary tax losses on business trading and deferral with lower long-term capital gains tax rates on segregated investment positions.

The tax law pros at RJS LAW are intimately familiar with Section 475 mark-to-market rules and we can help. If you’re a trader being audited in this area, contact us or call (619) 595-1655  immediately. We have offices throughout Southern California in San Diego and Orange County and our tax attorneys can guide you.

And if you’re a financial trader, come sit down with our team and let’s map out a strategy for your business to make sure that you’re qualified for 475 treatment and the best way to get you set-up to take advantage of the rules.

Filed Under: IRS Audits, IRS Forms Explained, IRS Issues, San Diego Law Firm, Tax Attorney, Uncategorized Tagged With: business expenses, capital gains, Section 475, tax deductions, tax write-offs, taxes, trading

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