A slang phrase used when a broker earns commissions from both parties in a security sale. The purchaser and the seller of the security will pay a fee to the broker for facilitating the transaction. Taobiz explains Each Way Going each way on a trade is ideal for a broker. When investors purchase or sell a stock, bond or derivative, they will usually conduct the transaction through a broker. The broker will take the client's order and try to fill it. For this service, the broker will usually charge a small fee to cover the transaction costs. If the broker is able to match the clients together, they are able to earn twice the commission on a single transaction.
An option pricing model that involves the construction of a binomial tree to show the different paths that the underlying asset may take over the option's life. A lattice model can take into account expected changes in various parameters such as volatility over the life of the options, providing more accurate estimates of option prices than the Black-Scholes model. The lattice model is particularly suited to the pricing of employee stock options, which have a number of unique attributes. The lattice model's flexibility in incorporating expected volatility changes is especially useful in certain circumstances, such as pricing employee options at early-stage companies. Such companies may expect lower volatility in their stock prices in the future as their businesses mature. This assumption can be factored into a lattice model, enabling more accurate option pricing than the Black-Scholes model, which inputs the same level of volatility over the life of the option.
A document published by the Internal Revenue Service that outlines the tax rules for U.S. citizens or resident aliens earning income in a foreign country. Income earned abroad is typically subject to taxation, and citizens or resident aliens earning income abroad are responsible for the same filing requirements as individuals living in the U.S. IRS Publication 54 discusses how to determine if a tax return should be filed, how to report earnings if they are paid in a foreign currency (the return requires reporting in U.S. dollars), whether estimated taxes should be paid and how to file the return itself. The document also indicates how to treat contributions to foreign organizations, and how to take foreign taxes into account. Living abroad also carries with it some special rules for tax deductions and credits. Workers may be eligible to exclude a certain portion of their incomes from taxation, as well as deduct part of their housing expenses from taxable income.
A document published by the Internal Revenue Service (IRS) that details the different commonly recognized accounting methods. The IRS requires taxpayers to use a consistent accounting method when reporting income. All income, regardless of source or type of taxpayer (individual or business), is reported according to a tax year. The most common accounting methods are cash accounting and accrual accounting. The cash method of accounting has the taxpayer report income in the year that it was received, while the accrual method has the taxpayer report income in the year that income was earned, although it may not be received during that tax year. If a calendar year is adopted as the filing year it must continue to be used even if the taxpayer incorporates, enters a partnership or becomes a sole-proprietor. Special permission must be granted by the IRS to change the filing schedule.
An options strategy in which a put option is purchased as a speculative play on a downturn in the price of the underlying equity or index. In a long put trade, a put option is purchased on the open exchange with the hope that the underling stock falls in price, thereby increasing the value of the options, which are "held long" in the portfolio. The options can either be sold prior to expiration (for a profit or loss) or held to expiration, at which time the investor must purchase the stock at market prices, then sell the stock at the stated exercise price. The long put strategy represents an alternative to an investor simply selling a stock short, then buying it back at a profit if the stock falls in price. Options can be favored over shorting due to increased liquidity (especially for stocks with smaller floats), increased leverage and a capped maximum loss (the investor cannot lose more than premiums paid).
One of the most famous market bubbles of all time, which occurred in Holland during the early 1600s when speculation drove the value of tulip bulbs to extremes. At the height of the market, the rarest tulip bulbs traded for as much as six times the average person's annual salary. Taobiz explains Dutch Tulip Bulb Market Bubble The tulip was brought to Europe in the middle of the sixteenth century from the Ottoman Empire. Holland's upper classes soon competed for the rarest bulbs as tulips became a status symbol. By 1636, tulip bulbs were traded on the stock exchanges of numerous Dutch towns and cities, encouraging all members of society to speculate in the markets. Many people traded or sold possessions to participate in the tulip market mania. Like any bubble, it all came to an end in 1637, when prices dropped and panic selling began. Bulbs were soon trading at a fraction of what they once had, leaving many people in financial ruin.
A document published by the Internal Revenue Service (IRS) that provides information on the audit process, a taxpayer's right to appeal and how a taxpayer can claim a tax refund. The IRS uses a software to assign a score to both individual and corporate tax returns, with high scores more likely to result in further review. It can also be pulled for review if information in the return does not match other data sources, such as a Form 1099 or a W-2. If any changes, such as additional taxes due, are proposed by the IRS, the taxpayer can either agree to (and pay) or appeal the decision. If the decision is appealed it can be fast-tracked for resolution. The IRS reviews tax returns for a variety of reasons, and may not make any adjustment to the reported tax figure. If the IRS determines that additional taxes should be paid, taxpayers can hire an Enrolled Agent, attorney or other sanctioned person to represent themselves in IRS proceedings. Additional information on the audit process is available in IRS Publication 1, Your Rights as a Taxpayer.
A document published by the Internal Revenue Service (IRS) that provides information to taxpayers who are married, live in a state supporting community property laws and are filing separate tax returns. Income and property is considered community if it is purchased or owned while the couple is married. All else is considered separate. Couples filing separately report half of their joint income and all of their separate income. Not all states treat community property the same way. IRS Publication 555 only addresses Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. If the tax payer's primary residence is in one of these states, or if residency has been established by voting or by paying state income tax, then community property rules are likely to apply. Married taxpayers will typically have a lower tax obligation if a joint return is filed rather than an individual return, but this is not always the case.
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