The Tax Guide for Traders

Rating:
Summary: Everything you wanted (and need) to know...
Review: If you are an active trader, this book MUST find its way into your hands. It covers every issue necessary to help you in filing your taxes with trader status. If you can file as a trader, a whole new world of business expense deductions will be open to you. I found that this book answered every question I had, along with some I hadn't even thought of yet.

If you are familiar with author Robert Green's Green Company website, you know how much information and detail he has to share. And if you've read the many pages on his website or his articles in "Active Trader" magazine, then you know how Mr. Green is able to take the otherwise complicated and confusing (and sometimes boring) subject of taxation and present it in a way that almost anyone can follow.

You will find chapters dedicated to important topics such as entity selection and formation for traders, mark-to-market accounting, retirement planning, and tax planning, along with several examples of IRS forms filled out for various types of traders. Mr. Green recommends simple, legal, and proven techniques for reducing the number one cost of traders -- taxes. And he doesn't use risky "tax avoidance" or "multiple-entity" schemes.

This book was written just a few months ago, so it is very up-to-date. In addition, the book promises to publish free updates on Mr. Green's website. So while the tax code may constantly change, this book should always be current.

I don't think this book should be thought of as a replacement for a qualified tax professional familiar with the needs of traders, although I suppose some folks may be able to file their taxes correctly with this book's help. The tax law is just too complicated and the rules are constantly changing from court decisions and lawmakers in Washington. But this book will help you run your trading like business in a way that will allow you to maintain trader status and make life easier at tax time.

I have read every book and website I could find on the subject of trader taxation and entity formation. This book, "The Tax Guide for Traders", is the best yet. I highly recommend it.

Rating:
Summary: Read it before visiting your CPA
Review: The book discusses issues that should be considered before filing as a trader. It also discusses factors that traders should consider before electing mark-to-market accounting. The guidance here is consistent with what I've read and heard from other credible sources.

A chapter is devoted to choosing the form of entity--single member Limited Liability Company, sole proprietor, etc. The book mentions several times that a tax professional should be consulted before selecting a form of entity for the trading business. This point cannot be overemphasized.

Another chapter includes the author's recommendations for establishing retirement plans that traders who have established a business entity may find useful. The book also discusses allowable deductions for traders.

The chapter on proprietary trading discusses considerations when trading a firm's capital instead of your own, and what to consider before associating with a firm as an employee or independent contractor.

For the most part, the book uses examples to illustrate key points effectively. The chapter on IRS audits includes a couple of cases studies--an audit of a part-time trader and an audit of an unprofitable trader. Illustrative Schedule Cs (Profit or Loss from Business)--for a sole proprietor and an LLC--are presented and discussed in some detail. The chapter on futures and commodities trading seemed to lack the level of detail that was present in other parts of the book, although it does provide a good overview of the relevant issues. As for taxation of equity, index, and ETF option trades, the book does not offer any guidance at all in this area.

The author is a CPA, and CEO of an accounting firm that provides services to traders and investors. This edition of the book was published in late 2004. Readers are invited to log on to the accounting firm's web site to get updates on issues that were not included in the print edition when it went to press. The web site also has links to journal articles published by the author that will be of interest to active traders.

I was somewhat bothered by the Introduction to the book, where the author appears to take a dim view of other tax professionals who serve trader/clients or want to get into the business of serving them. We are told, for example, that unless your local CPA or tax attorney handles "dozens" of traders, they probably will come up short in their advice to you." Dozens? Oh, come on now.

That said, I believe the book is a good starting point for active traders who are considering making a business out of it. With this information at hand, you should be able to ask good questions of your local CPA. He or she should be able to put you on the right path or, if appropriate, refer you to another tax professional with experience in this area.