What if I want to make the mark-to-market election for the 2000 tax year but did not do so on the tax return I just filed for 1999. Could I make it on an amended return if I filed it right away? Does the election have to be made on a tax return, or could it be made separately in some way through a separate letter to the Internal Revenue Service? -- Jill McCoig
You cannot amend your 1999 tax return to make the election, says Ted Tesser, trader tax specialist and author of
The Trader's Tax Solution.
The mark-to-market election allows a trader to value her portfolio as if it was sold on the last business day of the year. For the tax years 2000 and forward, the IRS has ruled that this election must be made by April 15 (or the first business day thereafter) on your previous year's tax return. So if you did not make the election by Monday, April 17, 2000, then you cannot mark your trades to market in 2000. Check out this previous
story for more details on making the mark-to-market election.
Can I Convert My SEP IRA to a Roth?
Is it too late to convert from a SEP IRA to a Roth IRA using 1999 AGI numbers? -- Brian McGonigle
Yes, it's too late. To qualify for 1999, your SEP IRA -- or any other IRA -- must have been converted to a Roth IRA by end of the calendar year, says Maggie Doedtman, a senior tax-research and training specialist at
in Kansas City.
A Simplified Employee Pension plan is like a profit sharing plan in some ways, says Clarence Kehoe, partner and director of employee benefits at
Anchin, Block & Anchin
, a New York accounting firm. Your employer can contribute up to 15% of your compensation to the plan. But that money is not placed in a big trust, like it would be in a normal profit-sharing plan. With a SEP IRA, each employee's contributions are put into a separate individual IRA.
That means the employee can control the money. So assuming your adjusted gross income does not exceed $100,000, you can convert the IRA to a Roth in 2000. Remember, you'll owe ordinary income tax on the amount you convert.
See this previous
Tax Forum for more on the Roth IRA rules and check out the IRS'
Publication 590 --
Individual Retirement Arrangements
For more info on SEP IRAs, stay tuned for Vern Hayden's column this Wednesday.
How Exactly Do I Defer My Loss On A Wash Sale?
I had to sell off my position in i2 Technologies (ITWO) at a loss this month to cover a margin call. Now that the market seems to be pulling out of the recent correction, I bought some back. How can I handle this next April? Can you expand your explanation from your " mega-piece", about how the loss is added back to the basis of the repurchased stock? -- Stephen W. Mamber
First, a quick recap on the wash sale. If you buy a stock, sell it at a loss and then buy it back, you're holding the same position in which you started. So economically, your position has not changed. That's why the IRS created the rule that says if you sell a security at a loss, you can't deduct the loss on your tax return if you acquired a "substantially identical" security 30 days before or after the sale.
Let's say you bought one share of i2 Technologies at $163 on March 1. You sold it at $122 on March 31 to cover your margin call. You now have a $41 loss.
But over that weekend you decided to get back in. So on April 3 you bought your share back at $93. You've triggered the wash sale because you bought the stock back within 30 days of the sale. Now you cannot claim that loss on your tax return.
But there's hope. The wash sale rules say that you can add the disallowed loss to the basis of the repurchased stock.
The technical jargon says that the basis of the new stock equals the original price of the security less the difference between the sale price and the repurchase price. So the original share was $163, but here you sold the share at $122. Before the 30-day waiting period was up you bought the share back at $93. The basis in that new share is now the original basis ($163)
the difference between the sale price ($122) and the repurchase price ($93). Your new basis is $134 in this situation. You've just added the $41 loss to the $93 share.
On the flipside, if you had sold the stock for less than the repurchase price, the calculation is a bit different. The basis of the new security will be equal to the basis of the securities you sold plus the difference between the repurchase price and the sales price of the original shares.
Let's say the basis in the old stock was $163 and you sold it at $122. Before the 30-day waiting period is up, you buy the share back at $125. Your basis in that stock is equal to the old basis ($163)
the difference between the repurchase price ($125) and the sales price of the original shares ($122). In this scenario, $166 is your new basis.
Although it looks like you just added the disallowed loss to the new basis, it's recommended that you still walk through this exercise because the numbers are not always this straightforward.
Many thanks to Richard Shapiro, an
Ernst & Young
securities tax partner in New York, for helping with these numbers.
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