Hi All - I am new here, and I am also new to day trading; I started in April and so far made several hundred trades (not very profitable ) I am near zero in total balance, but had several thousand $'s gain, and several thousand $'s loss. And now I started to think about taxes... I know that all of this day trading is treated as "wash sales", so I will not be able to claim losses in 08 tax return. But what about gains? Should I pay estimated taxes on gains, or should I not, because in fact I did not make profits (gains were balanced to zero by losses) ??? Thank you. Peter
You didn't say, but I assume that you are self employed. If you are, then you should send in something on your quarterly taxes in the event you show a profit at the end of the year. Even a minimal amount, like $500., will help. Otherwise you will be at risk of paying a penalty if you have income for the year. If you don't show any income for the year, you'll get the quarterly payments back in a refund. (A few years ago I was traveling and neglected to send in a quarterly payment. Although I brought things back to even in subsequent quarters, I was later penalized by the IRS for missing the single quarter.) Regarding your trading, if you show losses for 2008 there is no reason IMO that you can't deduct up to $3,000 in this year and subsequent years until the loss is cleared, as per IRS regs. If you show gains and you have traded often, and it has been your primary source of support, then file as a Trader in Securities and take advantage of the fact that you don't pay self-employment tax or Social Security, as your trading gains are not considered 'earned income'.
first of all estimated taxes are something you are "supposed" to pay but are not required to pay. if you fail to pay them and end up owing the penalty is nothing more than interest on the money. second you do not seem to understand wash sales. you need to educate yourself in this area.
First of all, don't worry about WASH SALES! If you do not trade in December any of your issues that are subject to Wash Sales, then ALL of the losses are net against the gains. WASH SALES are BS. You do not lose the capital loss on a wash sale, your cost basis of the new purchase is adjusted. NO NEED to send in estimated unless you made money, period. Worry about this in September. Take any tax advice from this website with a large grain of salt, and search the internet/ IRS website for sound advice. You can file a NOL, Net operating loss, if you made money in years past, and lost this year, hire a CPA! el surdo
Nah, stop with the quarterly payments. I used to do that too, until I met, and hired a real tax pro. He's a "Tax Attorney", and the first thing he said when I met with him is to stop the quarterly payments at once. I said what about penalties, etc..., he said not to worry, he knows the rules, better then most in the IRS, so stop that shit at once. And, if taxes are due at the end of the years (always are), then I just write one (big!) check. Its so much easier this way, and much less stressful. If you are at all serious about this, you'll research and find a good tax accountant/attorney who knows what he's doing.
"Estimated tax" penalty The internal revenue service wants you to pay estimated taxes on an as-you-go basis. If you receive wages, taxes are withheld as the wages are earned. However, for other types of income - such as self-employment income, interest, dividends, capital gains, etc. - there is no employer to withhold taxes, but the internal revenue service still wants to collect taxes on an as-you-go basis. Thus, for these types of income, you may have to make "estimated tax payments" or be subject to estimated tax penalties. Estimated taxes must be made in four equal installments, payable on April 15, June 15, September 15, and January 15. The estimated taxes "penalty" is something of a misnomer, in that the penalty is really just interest. Calculation of the penalty is based the internal revenue service underpayment interest rate times your estimated tax underpayment. " you have to ask yourself. can you as a trader make more than the interest the irs will charge you if you trade the money?
If you've been reporting substantial income and not paying quarterly taxes and have not been assessed penalties, then you have simply been lucky...not right. There is no confusion about this on the part of the IRS or knowledgable tax authorities. The regulations are very clear, and as I said I myself have paid penalities. If you want to skip quarterly payments, go for it. But you put yourself clearly at risk of penalties and having to deal later with the IRS and your tax preparer. As for me...having been through it once... it isn't worth that hassle, and the risk of opening up other issues in an audit.
This is correct, however it appears thet The OP is breaking even at best! If one has a good first half of the year, it certainly is in their best interest to either segregate funds earmarked for Uncle Sam or send him a little gift mid year. surdo
You just began trading in April???. You're not consistent. You may lose money later this year. I wouldn't worry about paying at this point. However, starting reading and learning about tax stuff, including wash sales, since you seem very green on this issue...understandably.