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Big Mac · Mar 16, 2012, 12:17 PM

As part of my trading career, I started assisting my mother in managing her investments starting last fall. I would have started earlier but that was when our family's financial adviser started giving us more leeway to make financial decisions for ourselves. Recently I started buying her AAPL call options, not as much as I should have at first - I bought her first contracts after the blow out earnings when the stock was still absurdly and obviously undervalued, but I only got a small number to start with because I wanted to start off more conservatively. Since then I have been trading them more aggressively, and my mother has done quite well. Quite well to me at least, as in around $200K profit in 2.5 months. She also has other investments that have done well, but the bulk has come from AAPL.

So she's going to have hundreds of thousands in short term capital gains this year. Anyone have tips for dealing with them when it comes to tax time? I know that short term capital gains are treated like regular income except they're not subject to self-employment tax because they're investments, not wages or salary.

Also, there's the issue of how I am to be paid, since my management of her funds has cut into the time I previously devoted to my other trading/business pursuits. My accountant has some question as to what kind of fees my mother can write off as an expense for my consulting. (I have purposely chosen to remain unlicensed because I don't manage outside investor funds, so I'm not required to get licensed, but my accountant thinks I can't consider myself a regular adviser and take the fees/percentage that an adviser would take because I'm not licensed.)

I know this is a specialized area of knowledge, but if anyone has similar experience dealing with these types of financial matters, I'd love to hear your thoughts.

turtle777 · Mar 16, 2012, 12:27 PM

Originally Posted by Big Mac

Anyone have tips for dealing with them when it comes to tax time? I know that short term capital gains are treated like regular income except they're not subject to self-employment tax because they're investments, not wages or salary.

It might sound harsh, but if your accountant can't help you with that, you probably need a new accountant.

-t

Big Mac · Mar 16, 2012, 12:30 PM

Don't get me wrong, he is helping us figure it out. I'm just probing the community for any additional tips. Thank you for the reply, though, turtle.

turtle777 · Mar 16, 2012, 12:35 PM

Yeah, sorry, I don't trade short-term, so I never accumulated knowledge pertaining to that.

-t

chabig · Mar 16, 2012, 01:41 PM

Just pay the tax, and remember to make estimated tax payments each quarter so she won't pay a penalty.

SVass · Mar 16, 2012, 04:12 PM

Originally Posted by Big Mac

As part of my trading career, I started assisting my mother in managing her investments starting last fall. I....
Also, there's the issue of how I am to be paid, since my management of her funds has cut into the time I previously devoted to my other trading/business pursuits. My accountant has some question as to what kind of fees my mother can write off as an expense for my consulting. .....

I suggest that you do two income tax calculations. In one, assume a management fee. In the other, have her GIVE you some money. She can give you quite a bit and you pay no taxes on said gift.
sam

Patrick · Mar 17, 2012, 02:19 AM

Originally Posted by SVass

I suggest that you do two income tax calculations. In one, assume a management fee. In the other, have her GIVE you some money. She can give you quite a bit and you pay no taxes on said gift.
sam

About 5 years ago, I was told by my parents that the limit on non-taxable gifts was $10,000. I've forgotten whether it was an annual thing, but that would make sense, right?

lpkmckenna · Mar 17, 2012, 02:36 AM

You're doing your mother's financial planning, and getting paid for it? Are you gonna perform medical procedures or do legal work for her too? Seriously, this sounds like a bad idea.

Coming *here* for advice is a really, really bad idea.

Sealobo · Mar 17, 2012, 06:59 AM

in a parallel universe, you're posting a thread about losing money for your mother and how she is going to punish you. O, and you're asking if the loss is tax deductible.

SVass · Mar 17, 2012, 09:12 AM

Originally Posted by Patrick

About 5 years ago, I was told by my parents that the limit on non-taxable gifts was $10,000. I've forgotten whether it was an annual thing, but that would make sense, right?

I could make this a political response by asking, "What does making sense have to do with tax law?"; but, I will refrain by stating that an accountant can do the computation as a parent could gift a million dollars to their child with no tax consequence a few years ago. I have no idea about the current rules.
sam

Cold Warrior · Mar 17, 2012, 09:47 AM

$13,000 per year no tax, no IRS reporting. Publication 950 (10/2011), Introduction to Estate and Gift Taxes

SVass · Mar 17, 2012, 10:47 AM

Originally Posted by Cold Warrior

$13,000 per year no tax, no IRS reporting. Publication 950 (10/2011), Introduction to Estate and Gift Taxes

I am not trying to explain or debate current tax law; however, per the cited publication:
"The following table shows the unified credit (recalculated at current rates) for the calendar years in which a gift is made or a decedent dies after 2001.
2012 $1,772,800"

The first 13,000 is not taxable. The remainder of any gift to a child can be subtracted from her estate's credit later and is not taxable today. If her ultimate estate will be less than the credit, then that portion is also tax free for both!
Let the accountant explain the rules. (Note that estate tax laws can change randomly in any direction.)
sam