Filing Taxes as an Active "Day" Trader

Discussion in 'Taxes and Accounting' started by Bullz n Bearz, Jul 1, 2007.

  1. Hi, how does one inform the IRS that their were losses in the beginning of ones career as a day trader in the stock and futures markets? i have probably placed over 1,000 + trades and i have to get all the information from my brokers first, but how can i inform the irs of my losses in the past so i don't have to pay taxes on my current gains? i wouldn't have to pay tax until i pay back all my losses inherently, right?

    need help or info on where to find trader accountants that can help me with this issue.

    thank you
  2. Usually your broker will give you a 1099 then take it to an accountant. Go to they specialize in traders.
  3. Maverick74


    False. You can only deduct 3k of your losses a year going forward unless you elect mark to market status which has to be done BEFORE you lose the money, not afterward.
  4. I concur. That's why when I started daytrading, which is very difficult, I filed an LLC. to get max write offs on loss in that year.

    I would call Paul Mann aka He is good and may still offer a 1 hour free consult. That's who in inc'ed with, and no I am no paid by him a penny.
  5. JackR


    How many years back do the losses go?

    You can deduct up to $3,000 a year in capital losses against current income (typically the income shown on your W-2 for that year). The rest of the losses are carried forward.

    Let's say you started trading last year and lost $7,000 in trading (short-term capital loss).
    Let's say your job paid $50,000 a year.

    Forgetting other deductions, you would reduce your taxable income by $3,000 down to $47,000 and pay tax on that amount.

    You would carry-forward $4,000 of short-term losses to be used agfainst this year's capital gains. If you make over $4,000 in trading you can deduct the entire $4,000 against those gains.

    If you only make $2,000 trading you would use $2,000 of the carry-forward to reduce that income to zero and you could apply the remaining $2,000 against W-2 income.

    That's simplified, but covers it fairly well.

  6. nkhoi

    nkhoi Moderator

    you don't inform irs, you just file you unclaim aggregate losses in the past against your current gains, what ever losses remain will be carry over on to next year and so on, and don't forget to file 3K of your losses against your ordinary income first.
  7. I have filed as a "trader." The first two years doing that, I had significant losses. (I realize that goes against the average ET poster, who became a millionaire within their first 7 months of trading). I also had significant income from my job (well into 6 figures) and that income was partially offset due to my losses. I would recommend filing as a trader - the IRS is somewhat ambiguous on what constitutes a trader; but essentially you have to show that you're dedicated to it, having a a home office helps, and that you spend a "significant" amount of time devoted to it. Eventually, you have to start being profitable, from what I understand, or you run the risk of an audit. Definetely look into it, BNB.
  8. Ok, would you guys recommend an LLC over a Sole Proprietorship or vice versa for better tax rates?
  9. Just do a search, i think it has been discussed here many years ago.
  10. nkhoi

    nkhoi Moderator

    you profit when you profit even irs can't make you do that:D
    #10     Jul 1, 2007