This page is provided for general information purposes only. Be sure to contact a qualified tax resource for a specific question regarding your particular tax situation. Trading Direct does not provide tax advice. The topics covered on this page include:

1. General Tax Information, the 1099 and 1040 Schedule D
2. Schedule D Help- IRS Publication 550, and other IRS.gov resources
3. Wash Sales
4. Substitute Payments (for Dividends Received on Margined Positions)
5. Mark to the Market Election (for Active Traders)
6. IRA Contribution Information
7. Normal and Early IRA Distributions

1. General Tax Information, the 1099 and 1040 Schedule B, D

• Most individual domestic taxpayers are required to report capital gains/losses, dividends and interest to the IRS when filing their taxes.
• Your brokerage firm will generate a form called the consolidated 1099 form after year-end. This form will be submitted to both the IRS and respective client. It will show dividends, interest, and sales of securities. Be sure to retain your monthly statements and or confirmations to calculate your cost basis for positions which were sold during the past year. (If you did not retain these statements, log into your account and register for E-Documents to obtain data going back to Q4 2002)
• Here are the forms normally submitted to the IRS, in addition to the standard 1040:
  1040 Schedule B (http://www.irs.gov/pub/irs-pdf/f1040sab.pdf), is used to report interest and dividends.
  1040 Schedule D (http://www.irs.gov/pub/irs-pdf/f1040sd.pdf), is used to report gain/losses on sales of assets.

2. Schedule D Help- IRS Public 550, and other IRS.gov resources

• If you need additional information about any of the topics referenced in section 1 above, including how to calculate cost basis and how to report options trades, a good place to start is with IRS Publication 550 (http://www.irs.gov/publications/p550/index.html). Most answers can be found here.
• If you still have questions, consider searching IRS.gov or contacting the IRS or a tax advisor directly. (Trading Direct does not provide tax advice)

3. Wash Sales

• In general, for a normal Schedule D tax filer, he or she must report all sales on the Schedule D when filing taxes. When he or she takes a loss selling a stock, it is not to be repurchased until after 30 days, otherwise it is considered a “wash sale”, and the loss cannot be deducted on your taxes.*
• For official definition and more details, see IRS publication 550 (http://www.irs.gov/pub/irs-pdf/p550.pdf ), page 55.

4. Substitute Payments (for Dividends Received in Margined Positions)

• If a client received a cash dividend from a stock which is margined (money is borrowed from the broker to and held in the margin account), it is possible, via the IRS Lottery, that it may be deemed as a “substitute payment”. * The substitute payment may likely show up on revised 1099, and replace what was originally classified as a cash dividend.
• For more information on how or why this is done, see these links at the IRS.gov site:
  http://www.irs.gov/businesses/small/international/article/0,,id=131276,00.html
  http://www.irs.gov/pub/irs-irbs/irb03-40.pdf (page 60 of 96)

5. "Mark to Market" Election (for Active Traders)

• If you trade securities as your primary source of income you may want to consider taking the section 475 “mark to market” election for your IRS tax reporting status.
• The advantages are thought to include being able to takes losses as ordinary, no wash sale considerations, and carry back losses to prior years.*
• The main disadvantage however is you must take unrealized gains at year end, and the election is permanent unless you apply for a rescission.*
• *For official definitions and parameters, and to see how to qualify and apply with the IRS, see IRS Publication 550 (http://www.irs.gov/pub/irs-pdf/p550.pdf), page 72, and IRS Topic 429 (http://www.irs.gov/taxtopics/tc429.html)

6. IRA Contribution & Eligibility Information

• Contributions made to an IRA are generally tax deductible, while contributions to Roth IRA’s are not.*
• For tax year 2008, individuals under 50 years of age may contribute $5000 to an IRA. If over 50 it is $6000.*
• If you are covered by your employer’s retirement plan or 401k, there is a phase out for IRA contribution deductibility. If single the amount is $53,000, and for joint it is $85,000 for tax year 2008.*
• For Roth IRAs, if your modified adjusted gross income exceeds the eligibility limits, your contribution amount may be reduced. For tax year 2008, the modified AGI phase-out level is $101,000 for single filers and $159,000 for joint.*
• For Education Savings Accounts, tax year 2008, the modified AGI phase-out level for is $95,000 to $110,000 for single filers, and $190,000 to $220,000 for joint.*
• *See IRS publication 590 for official rules and further details: http://www.irs.gov/pub/irs-pdf/p590.pdf

7. Normal and Early IRA Distributions

• Normal distributions may generally start after the participant reaches 59.5 years of age, and mandatory distributions may start at age 70.5.*
• If an IRA distribution is necessary before age 59.5, there is usually a 10% penalty that must be paid (in addition to any taxes that may be due), unless there is a qualified exemption. *
• For Roth IRA’s, there may be a 5-year holding period requirement before taking a distribution.*
• For the most up-to-date and further detailed information about IRS rules, see IRS publication 590 at http://www.irs.gov/pub/irs-pdf/p590.pdf

Disclosure: The above information contains general information on commonly addressed tax issues. It is thought to be accurate as of Jan 1st 2008, but not guaranteed. To confirm any information, consult the IRS or a qualified tax resource.