Hello My background: I have been trading futures independently since April. My broker automatically keeps my trading expenses (front-end monthly fee) in a separate account to make it easy to deduct. I am wondering what else you independant futures traders are deducting from your income. I would also be highly appreciative of any strategies you employ to make things easy on yourself as far as keeping track of expenditures which you deduct. Thanks a lot. 10yrtrader
Sounds like you clear through Advantage. They're the only ones I know of that keep a separate expense account. You can pretty much deduct all of your expenses that directly (sometimes a little indirectly if you're creative) relate to your "business" of trading. That can include your execution platform, your charting and analytic subscriptions (esignal, cqg, etc), computer and equipment leases, banking fees, telephone (if you have a separate line for your business), trading magazine subscriptions, and office rent if you rent an office (the list could go and on). If you have a home office, you can add up all your household costs (mortgage, utilities, etc) and deduct a percentage of it based on square footage used assuming that the office is used as your primary business location (you can't claim this deduction if you actually rent a separate office).
Hey -- thank you very much for your response. And yes, I do clear through Advantage. Let's say my charting fees over 12 months are 500 dollars. What kind of records of that do I need? Can I deduct that w/o records? Where can I find the info about the home office deduction for my monthly rent payment? Thank you!
If you're clearing through Advantage, probably the easiest thing to do is to have all invoices sent to their accounting department and let them "re-bill" it to your expense account. This way, at the end of the year, all of your expenses and all of your income is on one statement, and because the statement is from an FCM (and a pretty big one at that), I think that would probably be sufficient enough documentation to stand up to IRS scrutiny. The other way to do it is to keep a separate banking account, or at the very least, a separate credit card, that you only use for business related expenses. If you do happen to get a receipt for a transaction, save it (I scan them into the computer in PDF format so I can find them easily). If you don't get a receipt for something, just document what it was for in whatever accounting program you're using (Quicken, Quickbooks, or even Excel works just fine). Now all of this applies to expenses not deductions. For deductions, I would check with an accountant before you do anything, because the amounts and percentages you deduct can vary from year to year. The single best thing I think any new trader can do, is spend the money to have an initial consultation with Robert Green (www.greencompany.com). He is more expensive than your typical accountant, but in my opinion, he knows more about trader taxation issues than anyone else, and will probably end up saving you more money in the long run anyways (assuming you're making money of course). There is tons of good information on his website as well.
Pay an accountant, it's deductible off next years return, and will pay for itself and some. You should have a written record somewhere of your monthly platform fees on a statement somewhere.