Investment and Finance

A Day Trader is required to report his or her business activity on IRS Schedule C. Any income from the business is subject to both income and self-employment taxes. There is also a strict accounting/bookkeeping requirement. The Day Trader must segregate investments into 2 separate groups, trading securities and investment securities. Gains and losses from investment securities are reportable on IRS Schedule D. Gains and losses from trading securities are reportable on IRS Schedule C.

The Section 475(f) market to market election must be made by the due date of the previous year's tax return. The trader's short-term capital gains or losses are converted into ordinary income or loss. Losses that otherwise would have been limited to $3,000 are fully deductible against ordinary income in the current year. This election should be discussed with your local CPA.

If your only capital gains are your Form 1099-DIV box 2a, capital gain distributions, then Schedule D is not required to be filed. You will enter the 1099-DIV box 2a amount on IRS Form 1040 line 13.

In order to avoid any future problems and to avoid any mismatching reports with the IRS, you should include this amount on IRS Schedule B, both as a positive and negative amount. Enter the Form 1099-DIV amount on Schedule B, line 5 as income. Enter the same amount as a negative adjustment on Schedule B, line 5 and enter "Nominee Distribution" as the negative adjustment description. Speak to your local CPA if you have any questions about the reporting of this incorrect dividend income.

Proceeds from stock transactions are reported to individuals on Form 1099-B.
The individual transactions are entered on IRS Forms 8949 and Schedule D.
The sales should be listed, including the trade date, not the settlement date.

As the surviving spouse who receives a lump-sum IRA distribution upon your spouse's death, you may avoid the tax on this distribution if you made a tax-free rollover into your own IRA account.
Beneficiaries other than the surviving spouse may not use the tax-free rollover option.

If you are under age 59 and a half and do not roll over the distribution, then you will be subject to a 10% penalty in addition to the regular income tax on the distribution unless you meet one of these exceptions:
If you are disabled or pay substantial medical expenses with the distribution, or
if you are age 55 or older, you may not have to pay the penalty.
The penalty is calculated on IRS Form 5329.

You do not have to file IRS Form 5329 if you did a direct rollover.

The codes identify the type of distribution, and whether a Form 5329 penalty is required.
Code 1 identifies the distribution as an early distribution with no known exceptions subject to the 10% IRS Form 5329 penalty.
Code 2 = early distribution but a exception applies and no penalty lis levied.
Code 3 = Disability and no penalty required.
Code 4 = Death and no penalty required.
Code 5 = Prohibited transaction.
Code 6 = Section 1035 tax free exchange.
Code 7 = Normal distribution and no penalty required.
Code 8 = Excess contribution.
Code 9 = Cost of current life insurance protection..
Code A = May be eligible for 5 or 10 year averaging.
Code B =designated Roth account distribution.
E—Distributions under Employee Plans Compliance Resolution System (EPCRS).
F—Charitable gift annuity
G—Direct rollover and rollover contribution.
H—Direct rollover of a designated Roth account distribution to a Roth IRA.
J—Early distribution from a Roth IRA.
L—Loans treated as deemed distributions under section 72(p).
N—Re-characterized IRA contribution made for 2012.
P—Excess contributions plus earnings/excess deferrals taxable in 2012.
Q—Qualified distribution from a Roth IRA.
R—Re-characterized IRA contribution made for 2012.
S—Early distribution from a SIMPLE IRA in the first 2 years, no known exception.
T—Roth IRA distribution, exception applies.
U—Dividends distributed from an ESOP under section 404(k).
W—Charges or payments for purchasing qualified long-term care insurance contracts under combined arrangements.