Capital Gains or Earned Income?

Discussion in 'Professional Trading' started by LowRisk, Apr 9, 2007.

  1. LowRisk


    For years I've been filing Schedule E and have not put away any tax defered dollars into an retirment account. Now I'm questioning this practice suggested by my accountant. Strictly speaking, we prop traders trade other people's money although we do have some capital of a notional amount at our trading firm. The money we make is not off any investment we've made or we'd be viloating the margin rules big time. So is the trading profit a form of compensation for our work? Plus the firm takes additional 1% from our net profit. If the profit is strictly capital gains, should we get paid 100%? My accountant does not have the anwser. The big advantage with the money labelled as earned income is that we can put away 25% or up to $44,000 whichever is less into a SEP IRA and pay taxes years later. Any one?
  2. low risk simply ask your firm to 1099 you if they will. IN ORDER TO DO A IRA YOU MUST PAY THE 15% FICA TAX. PERSONALLY I'D RATHER NOT PAY IT AND HAVE NO RETIREMENT PLAN.but i'm sure many prop houses only send out k-1's so you don't have a choice
  3. LowRisk


    Thanks, Brandon12. So the 15% FICA takes away any incentive to mark the gains as earned income.
  4. fusionz


    that's the great thing about trading, there is no self-employment tax unlike most other self-employed fields.