how to deal with taxes for marketable securities?

CFA Level II
#1

for example, if you have trading security worth X, unrealized gain Y you should record X + Y on B/S, Y pre tax on I/S I guess Y * t should be part of deferred tax and Y * (1 - t) should be in NI right? and if more complex with dividend D, it should be net of tax on I/S and net of tax in cash on B/S?

#2

I’m not sure what you mean by “marketable”; if they’re trading securities, there is no deferred tax because all gains and losses (both realized and unrealized) flow through the P&L each quarter. So you’re right on your calculations above, but the tax aspect isn’t deferred, it’s a real “cash” tax that must go out the door.

#3

thanks. I was mainly talking about the unrealized part; tax on dividends should go out of door, but not unrealized gain I guess

#4

For our purposes, all effects on the p&l would be taxed – if it’s a trading security, both realized and unrealized are taxes. held for sale, only the realized.