TradeLog Now Supports Windows International SettingsArmen Computing Ltd. today released a major update of their TradeLog? trade and tax lot accounting software which fully supports the Microsoft Windows Regional settings for both Windows XP and Vista.Armen Computing Ltd. Launches New Trader Tax BlogMany of our users would like to know more about us, and would appreciate being kept up to date on the many issues facing active traders - especially when it comes to information that could help them come tax time.Reporting Trading Capital Gains on Schedule D - A Taxing Problem for Traders and InvestorsThe IRS has made it clear that all traders and investors of securities must report the details of their trading capital gains or losses line by line on the IRS schedule d. So if you have more than five trades, then the rest get reported on as many schedule d-1's as necessary.Online Broker Trade History Not Doing the JobThere are many problems faced by active traders in calculating their capital gains and losses from their online broker's trade history. Most brokers do not make it easy for their clients.Capital Gains from trading and investingIt is a fact of life that active traders and investors generate capital gains and losses - lots of them! The very nature of trading calls for buying and selling the same stocks and / or options over and over again.IRS Wash Sale Rule - How does it affect me?Most wash sales have absolutely no affect on your year end profit or loss! Yet, if left unchecked, the wash sale rule can have disastrous results at year end.Wash Sales - How to avoidAs an active trader, you may not be able to avoid each and every wash sale that may come along, due to the fact that you are in and out of trades frequently and some losses are inevitable. Yet you really don't have to worry too much about the net affect of wash sales until year end.IRS Schedule D and the active traderThe IRS Schedule D is the 1040 tax form where active traders and investors of stocks, options, and single-stock futures file their capital gains and losses for tax purposes. Schedule D is by far the most complex of all the IRS tax forms!Mark to Market accountingExactly what is mark to market accounting?Capital gains from trading investingIt is a fact of life that active traders and investors generate capital gains and losses - lots of them! The very nature of trading calls for buying and selling the same stocks and / or options over and over again.Futures trading capital gainsReporting your capital gains from futures trading is not quite the same as when trading stocks and options.Mutual Funds Capital GainsStock mutual funds are a little more complicated when it comes tax time.Capital Gains on DividendsDividends are defined by the IRS as distributions of money, stock, or other property a corporation pays you because you own stock in that corporation.
resale. Even if the Board determined that the seller made a "good faith" effort to verify the buyer’s representation and the seller was not liable to collect the tax, it doesn’t preclude the Board from assessing use tax on the buyer if very specific conditions are not met. In the opinion of the Board, if the buyer converts the vessel to any use other than being held for resale, it can’t be considered to be "being held for resale." The conditions of their ability to assess use tax on the vessel purchase are very specifically written out.
C. Another example would be where the buyer actually takes delivery of the vessel outside of California. Following the advice of "parking it" for 90 days (note 1) he pays dock fees and leaves it out of state. Subsequent to the 90 days (note 1) the buyer sails the vessel into California and begins using it. The Board will find this transaction to be taxable.
The previous examples are just a few cases where the taxpayers followed their available advice. They were all assessed tax. The public records are filled with many instances of vessel purchases that have resulted in a tax liability. The sad part is that in many cases a proper strategy would have resulted in a non-taxable event. Considering the price of watercraft, this can save the buyer hundreds of thousands of dollars. What is more important, a dealer that can provide the proper tax strategy to his customers as part of his "value-added service" has a significant price advantage. The one who "knows it all" can put himself and the purchaser in jeopardy.
There are a few experts who know the law as it relates to purchases of vehicles, vessels and aircraft. If you follow the steps exactly as they lay them out, you have a chance of saving all or some part of the tax. If you think you know the law, or if you try to use someone else’s strategy that worked for their case you could be in for a shock. Each transaction lives or dies on its own merits. Only careful analysis can save you.
The mistake that is very common to all taxpayers is not knowing the depth to which a tax agency can create "loopholes" for them to collect taxes. Most tax collection agencies view their mission as "collect revenue from every imaginable source." Some agencies promote personnel based on collection statistics. The Senate hearings into IRS tactics has made this clear.
Armed with this basic knowledge, the aforementioned examples illustrate the depths to which the Board of Equalization of the State of California will go to collect money. The good news is that in order to justify their collections all agencies must create a very rigid set of policies, manuals and reliance on previous decisions. Their "methods of attack" create the best possible defense. In their desire to define exactly the guidelines that must be met, they inadvertently give the taxpayer the method to develop a defensible tax strategy.
The Supreme Court declared that it is the duty of all taxpayers to aggressively pursue methods of avoiding taxes. However, misapplying rules isn’t a defense. The Justices merely supported your right to avoid taxes. It is illegal to evade taxes. They let you know that if you bother understanding the rules you can "avoid" taxes. "The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted." SUPREME COURT OF THE UNITED STATES, GREGORY v. HELVERING 293 U.S. 465;
"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands." --Federal Appellate Judge Learned Hand
(note 1)
Effective October 1, 2004 the test period has been extended from 90 days to 12 months
Thomas A. Alston is the president of Aero & Marine Tax Professionals (www.aeromarinetaxpros.com). He has successfully filed hundreds of tax returns with the California State Board of Equalization. Mr. Alston is California's premier specialist in legitimate tax avoidance on aircraft, vessels and vehicles, having published many articles on sales and use tax.
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