Tax Implications & Record Keeping Flashcards
7 cards from real CPT practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Tax Implications & Record Keeping flashcards as text
Futures contracts traded on a regulated exchange are typically taxed under which IRS rule that applies a blended 60/40 long-term/short-term rate?
Answer: Section 1256 rule
Section 1256 contracts (e.g., regulated futures) are taxed at a blended 60% long-term / 40% short-term capital gains rate regardless of holding period.
A trader uses a home office exclusively for trading. Which condition must be met for the home office deduction to be allowed under TTS?
Answer: The space must be used regularly and exclusively for trading business
IRS rules require that the home office space be used regularly and exclusively for the trade or business to qualify for the deduction.
Which of the following best describes the 'substantially identical security' concept in the context of the wash-sale rule?
Answer: Options or warrants on the same underlying stock you sold at a loss
Buying options or warrants on the same stock sold at a loss is considered acquiring a substantially identical security, triggering the wash-sale rule.
When a trader carries forward a net capital loss to the next tax year, the maximum amount of capital loss that can offset ordinary income in a single year is:
Answer: $3,000
Non-corporate taxpayers may deduct up to $3,000 of net capital losses against ordinary income per year, carrying the remainder forward.
A day trader who has NOT made the Section 475(f) election sells a stock at a loss and repurchases it the next day. The tax result is:
Answer: The loss is deferred and added to the cost basis of the repurchased shares
Under the wash-sale rule, a disallowed loss is not permanently lost but is added to the cost basis of the replacement shares.
Traders who establish a trading entity (e.g., LLC or S-Corp) may use which retirement account to shelter trading profits and reduce taxable income?
Answer: SEP-IRA or Solo 401(k)
A SEP-IRA or Solo 401(k) allows self-employed traders with earned income through an entity to make tax-deductible retirement contributions.
For record-keeping purposes, the IRS generally recommends traders retain trade confirmation records and brokerage statements for at least how many years?
Answer: 7 years
The IRS recommends keeping records for at least 7 years to cover the statute of limitations for audits involving fraud or substantial understatement of income.