hadnsome yes you must file a scd d. you can sum all your trades on 1 line or list each one. all the irs cares about is you pay taxes on what you made
Effective tax year 2005, you just can't sum all your trades on line 1 but must also list each and every trade. Not only does the IRS care about paying taxes on what you made but also how you made it as it applies to traders in securities. To wit: listing each and every trade and showing the profit or loss on each trade separately. http://www.irs.gov/pub/irs-pdf/i1040sd.pdf
what happens when people trade retail accounts through prop firms?? Do the same rules apply?? Or would the trader still receive a K-1? If not at least the prop firm would definately have all your transaction records when tax season comes. This may be a little different but in the past I have traded through a prop firm in which I believe the company was set up as one big customer account. I received huge leverage like any other prop firm but they didn't require series 7, 63, and 55 licenses. I received a K-1 there also like other firms I had worked at. And theres also the guys that trade through prop firms as individual retail customers.
Too much data to be explained in a single post. You can go through the attached link for a detailed explanation and tax treatment: http://www.greencompany.com/PropTraders/Traders.shtml
Hansome ... Here is the latest IRS letter explaining how one may deal with the Schd D situation. You would want to have a look at Question/Ans #4. I trade thru IB as a retail trader and the yearly statement has been acceptable to IRS as an attachment to sched D. So, i only use one line on schd D for this acct. If you did make a pile of $$ trading, then you status would change from investor to trader requiring preparation of additional items. http://www.irs.gov/businesses/small/article/0,,id=153349,00.html ... rj
The yearly statement will be acceptable if it contains all your trades and the profit or loss on each trade. The IRS prior to tax year 2005 accepted a one line summary figure for all trades but changed its requirements starting in tax year 2005 for all retail traders. It now requires them to list all their trades and the profit or loss on each trade. This can be in the form of an attachment. You will still use only one line on sch D providing you also include the attachment containing all your trades. The letter mentioned by you is very clear regarding the above. Also making a pile of dollars trading is not what changes your status from investor to trader. The IRS decides each case based on numerous criteria such as - whether you depend on trading for your livelihood, consistency and frequency of trading i.e if you have traded throughout the year, number of trades etc.
Well...i was addressing this persons situation only. For ex. with income of only 700$ per mo and say he traded for a profit of 15-20K its likely IRS is gonna say he is trader status. ... rj
The software you use to trade with keeps track of your buy and sell trades for you. You print out your buy and sells at the end of the trading day on your computer printer. You will also get a W-2 from your broker at the end of the year with every single one of your buy and sell orders on the W-2. But you should keep track with your own notepad and pen and paper also at the end of the trading day or as you go along. If you think you will make 15K at the end of the year, then I would adivise you to hire a CPA to do your taxes. It isn't expensive. Mine only charges $150.00 for everything. It is worth the $150.00 to me. Make sure you hire one that specializes in securities. Don't look for a budget CPA when it comes to your taxes. But there is no reason to hire one by the hour either. It shouldn't cost you more than $150.00. If he wants to charge you more, then find another one.