The New Trader's Tax Solution

Acknowledgments xiii Introduction: We Are All Traders! 1 1 The Basics of Accumulating Wealth and Keeping It 3 The Foundation--Things You Need to Know 3 The Basics of Tax Planning 3 Red, Gray, or Black-and-White? Choose Your Tax Strategy 4 There Is No Mystery to Saving Taxes 7 The Paradigm Shift to Tax Freedom 8 2 The Trader 's Tax Solution 9 There's Too Much Tax. Here's What You Can Do about It 9 "Thanks a Million, Uncle Sam." (Or Should I Say $89,500.49 after Taxes!) 11 Does Anyone Feel Morally Obligated to Pay the Maximum Income Tax? 12 How to Direct the Government in Your Best Interests 13 Investors Are Hit Particularly Hard 16 The Government's Free Lunch--Your Tax Return! 17 Starving the Government--Trader Status 17 Investor, Trader, or Broker-Dealer/Market Maker--What's the Difference? 18 You May Be a Trader and Not Know It! 20 Case in Point--Was Louis Yaeger a Trader? 22 What This All Means 25 Schedule C--Born to Be Filed 26 Other Benefits of Claiming Trader Status 28 It's Your Business--Why Not Deduct It? 29 3 Recent Trader Cases 47 The Case of Fredrick R. Mayer 47 The Case of Rudolph Steffler 53 The Case of Stephen A. Paoli 54 Trader Status--Other Cases 56 4 The 1997 Trader 's Tax Act--The Most Significant Changes for the Trader and the Investor since 1986 58 The Top 10 List of Things to Know 58 Section 475 for Traders of Their Own Accounts 64 Summary and Conclusion 68 5 The Triple Crown 69 The Most Effective Tax-Saving Strategy I Have Ever Known 69 Step 1--The Business 69 Step 2--The Entity 75 Step 3--The Voluntary Employee Benefit Association 97 The Triple Crown 111 6 Providing for a Wealthy Retirement 112 The Big Boom of 50-Year-Olds! 112 Life's Tough and Then You Retire--How to Make It Easy 114 Denial Is Not a River in Egypt 115 See No Evil, Hear No Evil. Opening Your Eyes 115 And the Walls Come Tumbling Down--the Pillars of Retirement Planning 118 The Tax Factor 119 Paying My Fair Share Does Not Mean the Maximum Tax I Can Pay 120 What Lies Ahead--and How Will It Affect Your Retirement? 121 The Crumbling Pillars 121 Conclusion: The 10 Deadly Sins of Retirement Planning 127 7 They Don't Make Hearses with Luggage Racks 129 The Last Laugh 129 Estate-Tax Planning 101: The Basics 131 The Unified Gift and Estate Tax 131 Multiple Choices--A Career in Government or a Career in Government? 136 A Typical Estate 136 Your Retirement Plan Gets Hit Worse 137 Conclusion 142 8 Income and Expenses: A Review 144 Income Defined 144 Earned and Passive Income versus Investment Income 148 Unlimited Gains/Limited Losses 149 Unlimited Income/Limited Expenses: The Pig and His Pal 150 What Is an Expense? The "Four Criteria Deduction Test" 150 Total Return Investment Plan (TRIP) 151 Calculation of True Yield 152 The Risk/Reward Ratio Revisited 156 Risk/Reward Ratio Meets the "Tax Factor" 158 9 New World Retirement Planning 162 Individual Retirement Accounts 162 Simplified Employee Pension Plans 164 Qualified Retirement Plans (KEOGHs) 165 10 New World Estate Planning 170 Using the Annual Gift-Tax Exemption 171 Using Estate-Tax Planning Strategies 173 Other Considerations in Addressing Estate-Tax Planning 174 Sixteen Crucial Definitions 179 11 The Double Play: To Give Is But to Receive! 183 Background 183 To Further Compound the Situation 189 A CRT and Your Heirs 190 A Crummey Trust Is Not So Crummy! 191 To Gift Is But to Receive 192 Prepay Your Estate Tax for Pennies on the Dollar 193 The Double Play--Summary 196 12 The Layup: It 's Just a Matter of Trust 197 How and Why to Set Up a Trust 197 The Layup--Summary 201 13 The Home Run: A Way to Double Your Exemptions 202 The Basics 202 The Home Run--Summary 203 14 Modern-Day Miracles--Chalk Up a Few for the Good Guys 204 Trader Status Audit Victories I Have Had 204 What We Can Learn from All of This 218 15 Knowing Your Limits: How Far Can You Go? 220 Question of Legality 220 "Only the Little People Pay Taxes" 221 How the IRS Builds a Criminal Case 222 The Taxpayer Bill of Rights 224 Specific Mitigating Circumstances 226 Your New Rights as a Taxpayer 229 Significance to the Investor and the Trader 230 Michael Milken 233 How to Play for Keeps with the IRS 233 What Criteria Are Most Important in the Selection of Tax Returns for Audit? 234 Types of Audit-Selection Processes 236 Ten Ways to Reduce Your Chances of Being Audited 237 Playing in the Major Leagues with the IRS 242 Audit DO's and DON'Ts 243 Other Winning Audit Techniques 246 16 101 Tax-Reduction Strategies 250 Conclusion 280 Appendix A Investment /Trading Vehicles and How to Report--Tax Consequences 281 Appendix B Deductions Related to Investment and Trading Activities 291 Appendix C The VEBA--Code Sections 294 Appendix D The VEBA--Court Cases 300 Appendix E Other VEBA Rulings 312 Appendix F 166 Frequently Asked Questions and Answers 318 Appendix G Trader Tax Return Examples and the 475 Election 350 Appendix H Logs and Journals 468 Appendix I It 's All a Matter of Time (The Reality of the Wash Sale Rule) 511 Appendix J Trader Evaluation Questionnaire 515 Notes 519 Disclaimer 523 About the Author 525 Index 527 Additional Resources 541