Do you pay local taxes?

Discussion in 'Taxes and Accounting' started by Toonces, May 20, 2006.

  1. Toonces


    If you are a full time trader and derive most or all your income from you pay taxes to the city you live in?

    I do live within the city. Every time I talk to my city income tax division I get a different answer. I know, talk to my accountant. But he's talked to them as well, and can't get a consistent response either.

    I think the issue is whether it's a capital gain or not. If you invest or trade part time, you're not liable to the city because trading profits are capital gains. But if you trade for a living, it's not a capital gain and you are liable for local taxes. Does this sound right?
  2. It's going to be hell when I pay taxes for the first time in my life next year. I'm going to have to figure out what to do.
  3. It's not clear because small and solo traders are unique and rare when compared to all other occupations in the country. Some local areas do have a tax on most occupations. CA, for example, has many of these districts.

    If you've formed an entity, this sometimes, by default, is considered a taxable business. Sometimes electing out of SubChapter K negates the local taxation, other times not.

    Whether you have capital gains or not, is generally way beyond the capabilities of the local taxing districts as well as the State Tax departments. Heck, even 99% of the IRS doesn't understand the difference thoroughly!

    So as you found out it is a largely ignored area that basically no one has a good handle on.

    Many traders take the position they know nothing, until they are caught by the tax district, and then they address the issue at that time.
  4. If I'm not traditionally working for an entity within a state, why would I pay state/county taxes as a solo trader? Capital gains are a federal issue as far as i'm concerned, and I will report capital gains on my federal tax return as such.

    I'm glad Bush extended the 15% tax treatment for cap gains and dividends for a few more years.
  5. Ummm... because it's the law?
  6. Unless I'm totally misunderstanding something.... profits from your trading account are not income, but capital gains. And capital gains are reported on your FEDERAL tax return. How would the state come into play regarding my capital gains? (assuming I had no day job or other income).
  7. Ebo


    You still file a Schedule D and a tax return with The State you "live" in. I bet you never knew the State Taxation departments actually do communicate with the IRS!

    Gee, I never knew i did not have to file a State Return all these years, maybe I will ask for my money back now. Ya' think the State owes me interest on the tax I should not have paid on my "trading income"?

    You are really not very bright.
  8. Chagi


    Sounds like this issue is a bit more complex in the US than it is in Canada? In Canada we submit personal tax returns to the CRA (federal), the returns also include a provincial tax form; essentially the federal government collects income taxes on behalf of the provinces.
  9. The majority of States consider capital gains as income.
  10. Sorry, I was being a wize guy :(

    The States can tax your income whether it is capital gain or otherwise. The States can also tax the net income or the gross receipts and have fees against your business whether "incorporated" (LLC or Inc, for example) or not (solo or partnership for example).

    The Local gov't can have separate fees for businesses of all types and can tax the net income or the gross receipts as well as the value of the property.

    Obviously some areas of the USA have more of this than other areas, and those areas that do have taxes and fees may be quite different that the fees and taxes in another area.

    Normally a full-time trader has little choice but to operate where he lives, so the only optional thing (other than moving) is under what type of business structure he operates.
    #10     May 22, 2006