-I trade 1256 contracts exclusively -Trading is my sole income source -I do not day trade. I position trade with the timeframe of 1-15 days (most often 2-10 days) For tax purposes can I be considered a trader?
The rules for "trader" status are actually pretty ambiguous the last time I looked. My tax advisor has had me filing as such the last few years. I've set up an LLC, but still file as "trader" though. Essentially, think of it like this: if you got audited, would you be able to prove that you devote a substantial amount of time to trading? Do you have a trading plan/business model, et al? My home office is situated w/6 monitors and 2 laptops w/trading software and most of the things in my office (i.e. books) are related to trading. Check w/your tax guy, but based on what you're saying I would say absolutely you could file as a trader.
Umm...no You must be able to prove that you seek to profit from day to day price fluctuations..but not necessarily by just day trading. managing open positions..etc
What are the other tax qualifications that might be suited for the trading style described in the original post? If he is not qualified for a trader tax status what is he then in the eyes of IRS?
i've been filing trader status for 7 years and i know the rules inside and out. there's a little room for wiggle but not much. the irs guidelines are bascially interpeted as someone trading actively and trying to catch intraday swings. robert green the grand daddy of trader accounting calls active trading 2-3 roundtrips a day i believe. just because you make all your income from trading means zip as if you trade little you're called an investor. you can file how ever you want till you get audited. to be honest the legitimate writeoffs for a trader are very very small. not more than 10-15k a year max and i mean max
You probably don't want trader status because it can open a can of worms and make tax reporting very tricky. 1256 contracts are M2M so you don't need trader status. Trading income also needs to be your primary source of income to get that status, should you still desire. If you do a regular 9 to 5 you'd never qualify. The IRS is very careful when granting this because it means you can write off more than 3k in losses. There's a very strong threshold you have to meet and if you don't trade full time you won't even come close.
If the OP has a job then that's his job. If not, and he doesn't meet the other requirements then the IRS considers him unemployed. This is a very tricky area. Also, if you do get this designation and you end up losing your wad it's very difficult to go backwards. Be careful with this.
Here are the IRS guidelines - * You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation. * Your activity must be substantial, and * You must carry on the activity with continuity and regularity. The following facts and circumstances should be considered in determining if your activity is a securities trading business: * Typical holding periods for securities bought and sold. * The frequency and dollar amount of your trades during the year. * The extent to which you pursue the activity to produce income for a livelihood, and * The amount of time you devote to the activity. Notice that they are a tad vague. I assume you trade short and long. futures trading both sides pretty well covers the first item. Daily in and out is not required. Option traders would rarely qualify if daily in and out were necessary. If you are making a living and it is your sole source of income your trading must be substantial (whatever that means). Do you work the market every day? Do you have a decent way to monitor the market? You are running a business and the IRS might challenge if you trade from your local library's internet machine. I think you are qualified, but I'm not qualified to answer your question. I'd suggest you document the number of trades you've made, their frequency and size, and their net result. Review the other IRS items. Then call Robert Green (www.greencompany.com) and pay him about $250 for a consultation. You'll have your answer. Jack
As of now, you can actually have another job (i.e. lawyer, doctor, etc...) and still file as a "trader." I've been filing as a trader for a while, as I stated, but there was an article in the WSJ earlier this year discussing how people from varying occupations are claiming this status. My belief is that the rules will change quite a bit soon.