A Break for Traders: No $1,200 Fee to Change Accounting Methods

Also, an IRA heads-up for people who turned 70 1/2 last year.
Publish date:

I am filing Form 3115 to elect mark-to-market accounting. Do I need to pay the user fee for filing such election? I made less than $150,000 last year.

-- Paul Lee


I'm impressed. You obviously read the instructions to

Form 3115

-- Application for Change in Accounting Method

. Page 2 of the instructions addresses this $1200 "user fee."

Fortunately, you don't need to pay the fee to mark to market your trades, which allows you to treat your securities for tax purposes as if you sold them at year-end. The

Internal Revenue Service

allows a number of exceptions to this fee requirement, and electing mark to market as a trader is one of them, says Ted Tesser, trader tax specialist and author of

The Trader's Tax Solution


Corporations as well as individuals use this cumbersome Form 3115. Corporate requests are more complicated and therefore require extra research and manpower to ensure that the change conforms with tax laws, says Jim Ceidel, manager of news and alerts at


, an information provider to tax professionals. (If you're really curious, check out the IRS publication

Revenue Procedure 99-49 for more details on which requests require the fee and which do not.)

Remember, though, that only traders who correctly made the election last year to mark to market for the 1999 tax year have to file Form 3115. If you intend to mark to market this year, be sure to indicate this in a statement and attach it to your tax return or request for extension by April 17. See this previous

Tax Forum for more on the mark-to-market filing instructions.

Cash Out, or Else

Did you hit age 70 1/2 in 1999? If so, you must start taking the required minimum distribution from your IRAs by April 3. (Normally it's April 1, but that falls on a Saturday this year.)

If you don't start taking the required minimum distribution by that date, you'll get hit with a failure-to-withdraw penalty equal to 50% of the difference between the amount that should have been withdrawn and the amount that was actually withdrawn. See

section 4974 of the tax code for more on that.

Even if you wait until April 3 to take the distribution, keep in mind that it applies to last year. You're still required to take another distribution for 2000.

But that's not all. By the time you start taking your minimum distribution, you must have chosen your IRAs' beneficiaries as well as the type of payment stream (for example, recalculation or nonrecalculation) they're going to receive. This is important, so be sure to consult your financial advisers.

See a recent

column by


contributing editor Vern Hayden for more on these required minimum distributions.

A Few Taxing Reminders

If you're looking to maximize your frequent flier miles you can charge your tax bill. But before you do, read our

story on the related consequences of using your credit card.

Are you thinking about getting a refund anticipation loan?

Think again. Sure, these loans guarantee you'll get your federal income tax refund (up to $5000) within 48 hours of electronically filing your return, but it'll take only seven to 10 days to have your refund directly deposited into your checking account. So why pay the extra $30 or so for the loan?

If you downloaded

Publication 970

-- Tax Benefits for Higher Education

, before March 22, do it again. That older version has an error.

How's the online tax preparation going? Any major issues? Have you had good experiences? Or bad ones? Let us

know and we'll share your responses with your fellow readers.

Send your questions and comments to

taxforum@thestreet.com, and please include your full name. Tax Forum appears daily through April 17.

TSC Tax Forum aims to provide general tax information. It cannot and does not attempt to provide individual tax advice. All readers are urged to consult with an accountant as needed about their individual circumstances.