Day trading and taxes?

Discussion in 'Taxes and Accounting' started by kmkkra, Apr 11, 2008.

  1. kmkkra


    Hello to anyone who reads this...

    I have an account with TD Ameritrade, and I have been thinking of becoming a pattern day trader. However I have been a little concerned about how this will affect my taxes and other aspects of my trading and/or trading account.

    (1) I was wondering, in what ways will being flagged as a pattern day trader effect my taxes.

    (2) Will my tax rate go up, and if so how much (I am a single male with no kids, and I make under $20,000 a year).

    (3) If I should some how come up with a phenomenal strategy to trade stocks, and I should make over $200,000 or much more in one year, what might my tax rate be like then?

    I had once read an article at that seemed to be saying that certain short term traders actually pay a lesser tax percentage than long term traders because these certain short term traders were trading as a job and it was there only source of income. Whereas long term traders where trading for a hobby or just to make a little easy money on the side of their regular job. The article labled short term traders as "traders" and long term as "investors".

    I have also heard the exact opposite, where short term traders pay a higher tax percentage than long term traders because trading is not considered work, and that it is a means of fast and easy money.

    (4) Which of these statements are true?


    Thank you VERY MUCH for your time and consideration.....
  2. kmkkra


    I have recently just learned that basically anything over $100,000 is taxable at a rate of either 35% or 39%, I am not sure which one. So it looks like I won't really be needing an answer after all. That is, unless you have some hepful information to add, such as a way to reduce this tax rate.

    Plus I think the Career Trading forum may have been a better place to post this, BUT thank you any how....
  3. Bob111


    i doub't that any individual, who cannot find answers on those questions above, will ever succeed in trading. specially in day trading. try to get even for couple years,before worrying about high tax rate..
    phenomenal strategy? can't find cap. gains calculator on internet..get real..:)
  4. Short term trades are taxed at your ordinary income tax rate. Long term capital gains are taxed at 15%.
  5. volcanik


    go to and look up your rates for short term and long term capital gains. Simple as that.
  6. hughb


    So is ET a place to come and get answers or a place to come and get abused? The OP is being polite and thanking people in advance for you to tell him to take a hike.


    Being flagged as a pattern day trader has no bearing on your tax bill. Since a day trader has short term capital gains, you pay tax at that rate which is the same as ordinary income.

    If your income is $20K per year, you are in the 15% tax bracket, (single, no dependants) Here are the rest of the income tax brackets:

    31850 - 77100 = 25%
    77100 - 160850 = 28%
    160850 - 349700 = 33%
    349700 and above = 35%

    So at $200K per year your tax bracket will be 33%.

    As far as reading/hearing about what types of traders pay more taxes, I'm not really sure about that myself. The IRS could classify you as a dealer, trader, or investor. The guidelines are very vague, and the IRS could try to put you in either the trader or investor category nearly on a whim. Some of the day traders hear make mentions of tax benefits by being declared a trader, but I'm not sure what they are. Probably things like deducting costs associated with trading, marking to the market, wash sales, etc. You would really need to go to the IRS website and try to sort it out yourself.
  7. you could have figured out the ansewer to your questions in the same time it took you to ask them. Personally I would worry about making money thann i would about tasxes. make some dough first
  8. Bob111


    for me-to open new thread on public forum is last resort. first thing i would do-use google. if there is not enough info-search on forums and public boards. and if this is not enough-then post.
    that's why people, who post those obvious questions got abused-cause they too lazy, to spend some time on research.
    agree with lightfootg-

  9. About 90% of daytraders vanish in first 6 months, so they donot bother filing taxes, as they are all losses.

    Very few file and they are taxed as ordinary income.
  10. kmkkra


    Hello this is in response to Bob111.

    Thank you for any useful info that you have gave me. I actually agree with your post.

    I am studying math, computer programming, and spanish and I usually will thoroughly query the forums, google and get books on the subject before I post. In fact I pretty much never post because I know that other people have questions too. The reason I started this thread was because I have an extreme anxiety problem and it really makes learning difficult(so I geuss that kinda' makes me a moron). I know that I will work this out eventually, but for now I am mentally just exhausted, and I geuss I thought I could cut through the mountain of information and just get a quick, specific, and very helpful answer from the pros. I also wanted indepth and detailed opinions, of the which, I don't believe I could have quickly gotten. I also keep reading different descriptions of how taxes work which is confusing.

    I am sorry Bob111 for any negative comments I my have made in other posts about you, and I apologize for starting this thread. I do not actually feel that I deserve an answer to my questions, but I feel my thread was necessary, not necessary in the long run, nor necessary for most, but definitely necessary for me. However, if in my current mental condition, I find it hard to either find an answer or to find a straight and definite answer, I suppose I will still start another thread, regardless. You are certainly right though sir.

    Thank you for reading this!
    #10     Apr 13, 2008