I have a full time non-trader job but since last couple of years I have started trading more frequently. Currently I trade about 20+ trades/week. I have been trying to find ways to get some deductions like home computer, monitors, trading seminar fees, news letter subscription fees, etc. I have met couple of CPAâs too but they all tell me that with a full time job in totally unrelated field I canât file as a trader as I donât quality but also there is no way I can get these deductions. Is anyone of you in a similar situation and if so, how do you handle taxes and deductions. Thanks, Appy
When the IRS is concerned it is easier to ask for forgiveness than permission, play stupid. And don't be greedy, that is how the game is played.
1. Get a business license in your city and incorporate in your state as an LLC. You could go C-corp but it's too complicated for what you say you need. 2. Keep receipts and records in both hard copy and on a PC for any expense or income you derive from trading. If your home is your trading location, to get any deduction one entire room must be 100% dedicated to trading (at least officially), to keep it simple. Anything shared between personal and 'business' use will likely not hold up under an audit, so don't even try. After your first year of fun accounting for your 'business' the second year will be easier. Get a business checking account at a bank different than your personal accounts. 3. You will still need a CPA's help regarding taxes on your LLC earnings, but mine feed right into my 1040, for ease of filing. 4. If you do not want to incorporate, you don't have to, and there are good reasons not to. But without a corp, you will be considered self-employed, subject to higher taxes. Benefits of incorporating include pension, paid benefits and (arguably) asset protection. Benefits of self-employment are little paperwork, cash into the pocket and few governmental rules. I just give the whole pile of garbage to my CPA, I have better things to do. Like watch the waves crash...
I got your point startraitor. Thanks. GermanTrader, can I have a LLC even if I have a non-related full time job some where else? I have very limited know how when it comes to taxes. Thanks. Appy
Listen to the CPA's. They know more than you. As to LLC, it is an entity onto itself. And yes, you can have a single member LLC. with full income pass-through. Just understand if you go that route, you will be paying professional fees, not non-professional. Corporations and partnerships are not recognized in the eyes of the exchanges and such as non-professional.
What GermanTrader said. Here's the line of thinking... The IRS says that person or entity doing the trading must have trading as their primary activity to deduct expenses. The secret is the "entity" part. You create an entity (LLC or S Corp) and that entity (not you) does all the trading. All the deductions apply to it. You still keep your job, but get the benefits. Sounds like loophole lawyer talk, but it's legit. That's how the IRS game works. Rich people do this sort of thing all the time to get grants, tax breaks, etc. They spend a few hundred to make a new entity, and make sure all releveant activity is within that entity to get the benefits, even though that entity is closely tied to all of their other activities. Lastly, buy the Tax Gude for Traders. If you can't find a local CPA to help, then spend the $$$ to use Green Tax (the company of the guy that publishes the book).
I must disagree. Filing for deductions for trading/investing expenses when you are employed elsewhere is asking to get red flagged. And once flagged, your chances of an audit each year increase. The aggravation and potential expense in answering to the IRS just isn't worth saving a few bucks. I speak from experience.
That's what couple of CPA's I met tells me. But I just wonder that there must be some way to get some help with short term capital gains, after all it is not long term investment, it involves active trading and I treat it as my daily business... spend hours on it... But at the same time I don't want to get messed up with IRS. From what I know, it is hard to fight against them... and there are so many consequences. Iâd do some research on what dethkultur mentioned in earlier post. Thank you for your response.