USA Loss Carry Back allowed for Mark-to-Market Business Trader filing as Sole Proprietor?

Joined
Jul 9, 2015
Messages
8
Reaction score
0
Country
United States
I have been filing as a Sole Proprietor for 10 years now and in previous years paid some hefty tax bills on my ordinary gains treated as ordinary income. I am using Mark to Market accounting and am classified by the IRS as a "trader in securities".
My question is if I have a large loss this year can I carry back this years loss to the year prior in which I had more income than current loss this year and paid a massive tax bill? Does it matter if you file as a sole Proprietor VS a partnership?
Example of income (taxed at highest rate)
2012 income of $250,000
2013 income of $350,000
2014 income of $500,000
2015 loss of $500,000
What could one expect to be refunded using a loss carry back?
The loss this year is large enough where doing a loss carry back is preferred since carrying forward the loss and using it against future income (gains) is difficult since there is a lot less trading capital. So any answers to my specific question are appreciated.
 
Last edited:

smallbushelp

VIP Member
Joined
Jun 22, 2015
Messages
191
Reaction score
20
Country
United States
First off, you can't file a partnership return if you are a sole proprietor. And most partnerships are treated as flow through entities and the partners file 1040s. If you do have a qualifying loss for 2015, you can carry it back to your two prior year returns and then forward for up to 20 years in most cases. Depending on the loss and your past taxable income, you could conceivable recover all tax paid in the prior two years. Only a review of your tax returns would provide that information. I suggest you review IRS Publication 536 and then consult a qualified tax accountant.
 
Joined
Jul 9, 2015
Messages
8
Reaction score
0
Country
United States
First off, you can't file a partnership return if you are a sole proprietor. And most partnerships are treated as flow through entities and the partners file 1040s. If you do have a qualifying loss for 2015, you can carry it back to your two prior year returns and then forward for up to 20 years in most cases. Depending on the loss and your past taxable income, you could conceivable recover all tax paid in the prior two years. Only a review of your tax returns would provide that information. I suggest you review IRS Publication 536 and then consult a qualified tax accountant.

I am sorry to confuse you. I don't know why I threw in Partnership in there. I am filing as a Sole Proprietor and have been for several years. I been using sec 475 Mark to Market accounting and am classified as a "Trader in Securities" by the IRS. A "Business Trader' if you will. I want to pose the same question. Can I use a 2015 loss and carryback and get a refund of the taxes I paid in for 2013 and 2014?
 

smallbushelp

VIP Member
Joined
Jun 22, 2015
Messages
191
Reaction score
20
Country
United States
I'm familiar with mark-to-market accounting and trader status and I assume you file a Schedule C with your 1040. If you wind up with a net operating loss for 2015 then yes, generally you can carry the loss back for two years and forward for up to 20. I'm hesitant to give a definitive yes because I don't know your full tax picture. Check out Pub 536.

If you have trader status, why do you file as a sole proprietor? Do you have any other source of income? Have you considered forming an entity like an LLC or corporation?
 
Joined
Jul 9, 2015
Messages
8
Reaction score
0
Country
United States
I'm familiar with mark-to-market accounting and trader status and I assume you file a Schedule C with your 1040. If you wind up with a net operating loss for 2015 then yes, generally you can carry the loss back for two years and forward for up to 20. I'm hesitant to give a definitive yes because I don't know your full tax picture. Check out Pub 536.

If you have trader status, why do you file as a sole proprietor? Do you have any other source of income? Have you considered forming an entity like an LLC or corporation?
Thank You. Yes I file a Schedule C with my 1040. Like I said, I am currently filing as a Sole Proprietor. I was structured as a General Partnership but that outlived its use when the income split down the middle hit the top tax brackets anyway. I was going to change to a LLC previously but never did. I hear so many debates over what the best entity is. In my situation, I have just been a solo trader that has had very high income over 15 years. I get absolutely eaten alive since my tax write offs are negligible.
 

smallbushelp

VIP Member
Joined
Jun 22, 2015
Messages
191
Reaction score
20
Country
United States
You may be missing out on some tax benefits that having an entity can provide, like setting up a 401K for yourself or a medical reimbursement plan. There's a company called Traders Accounting that I recommend you check out. They helped one of my clients establish his entities and a 401K plan. Then if you need accounting or tax help, I'd appreciate the opportunity to discuss that with you.
 
Joined
Jul 9, 2015
Messages
8
Reaction score
0
Country
United States
You may be missing out on some tax benefits that having an entity can provide, like setting up a 401K for yourself or a medical reimbursement plan. There's a company called Traders Accounting that I recommend you check out. They helped one of my clients establish his entities and a 401K plan. Then if you need accounting or tax help, I'd appreciate the opportunity to discuss that with you.
 
Joined
Jul 9, 2015
Messages
8
Reaction score
0
Country
United States
Thank you for the help, I will look into that website. I know I do need a entity to take full advantage. Hope my cash flow can support it now. I took a huge blow this year. Literally months ago I could have done nothing for 20 years. lol, I followed you and will contact you soon.
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top