How many of you who bought computers for trading use deducted them on your taxes? Did you take the section 179 deduction which lets you deduct it all in one year? If so, did you recapture some of that section 179 if you stopped trading in a later tax year? The recaptured deduction would end up as "other income" on your Schedule C I believe.
I did it. My return was examined for that year. My return was ultimately accepted as filed. I am not sure what the focus of the audit was but, with regard to the computer, I just submitted the proof of payment. I actually had pretty good records demonstrating that the thing was used every day for trading and for little else but I was not asked for any additional documentation. My recollection is that the 179 deduction was limited to taxable income before the deduction -- meaning that it cannot generate a loss. I don't know that that is still the case. I did not know that there was a recapture rule but I am still using that computer so I don't think it is an issue for me. mss
what form did your records of how your computer was used take? what is considered as acceptable proof to the IRS that it was used for business purposes only?
They never asked for more detail. What I had was a high volume of trades with detail from IB, trade-specific software on the machine and another computer for non-trading activities. I considered it appropriate documentation but, if the issue had been raised, I might have had a problem. For example, I am using the trading computer right now but I would argue that looking at this site meets an "ordinary and necessary" test. I don't keep a log or anything like that but the IB documentation demonstrates to me that I spend a lot of time on that machine for trading. My expenses were so small that I don't think it was worth their effort to raise any conceptual issues. It was important to me, though, because I had been taking similar deductions for several years and planned to continue. If I had lost here, they might have gone back to a prior return and I might have been circumscribed in the future. I have the feeling that they were just taking a random shot and were comfortable that I was not doing anything egregious. Somebody else with larger deductions might have to meet a higher standard. By the way, I am not sure what happened to me was technically an audit. I was notified by mail that my return was chosen for examination. I responded to their first letter ( a full day's time). They accepted part and did not accept part of my response. I then responded to their second letter with more detail (another day). They then they sent me a note that the return was accepted as filed. I never spoke to or saw an agent. I had only been audited once before and then I had to meet with an agent and appeal to a supervisor (I don't think they have that level of appeal any more) before my return was accepted. I am 2 for 2 although I have mistakenly not included 1099 income several times over the years and paid taxes, interest and penalties related to those amounts. mss
yea this is one of the issues I'm still a little confused on. My trading had a loss, so I guess I can't do the section 179 deduction. I did have a small amount of w2 income from a part-time job but I guess the computer cannot be deducted against that W2 income. But I have read otherwise so that's where my confusion lies.
What about in situations where you shut down your trading business? Does some of the section 179 deduction then have to be recaptured on the computer?
I've always claimed hardware and software expenses, line costs, that type of thing. Never an issue because my only income has been trading income by and large; it might get bounced if you are getting W-2 income by another means. No harm if they did, they would just re-calculate your taxes and invoice you for the difference with a modest interest penalty. Very common and doesn't typically alert the IRS to further action unless the person is really egregious about what they deduct.
i don't think it legit. unless you file under trader status.that why i have LLC.to simplify some things misc deductions(those that are subject to 2% floor) is your other choice on other hand-one decent PC cost 200-500$ max(for me,if i build it myself)..if this is the problem and does worth a hassle for you-you are in wrong business