I am currently being audited by the IRS. They are questioning the size and facilities of my trading âspace.â It is a 1995 sf. office condominium located in the downtown of a major city in the U.S., and contains two restrooms, a small kitchen area, a reception area, conference room, several work stations, and a pool table. It is used exclusively for my trading. It was formerly used as a professional consulting office, with several employees. I am the only one who occupies and uses this space now and I have no employees. The agent is questioning the size and facilities, using the âordinary, necessary, and reasonableâ test of the IRS code. Iâm sure many traders, especially those that trade from their home office, get by with less, but I suspect that many others have larger spaces. By the way, I was previously audited twice, and neither denied the use or the expenses associated with the use of the space. I do use several work stations for reading and research, laying out charts. I use the pool table for a little rest and relaxation, not unlike an employee lounge. I know that many larger companies have pool tables and game tables for use by employees. My specific trading area has 4 monitors and 2 televisions. There is a separate computer, also used for trading research, in one of the other work areas. I have been using this office for the last ten years as my place of trading. My questions: How much space do you use, and what are your annual or monthly costs. My office is fully paid off, but I have utilities, real estate taxes, maintenance, leasehold improvements, and a property owners fee, totalling about $13,000/year or $1,100/month. I am hopeful that some of you may volunteer (anonymously of course) that your trading office is similar or even larger, and/or that your office expenses for rent, utilities, and parking are more than mine. I have researched a number of other options to rent space elsewhere in the downtown area, and most exceed what I am now paying. Thanks in advance for sharing any relevant info.
1995 sf for trading? trading teams of 5-10 traders don't use that much space . thats insane. so you say your fees alone are $1100 a month? totally what are you writing off? you must be writing off a total of $25k a year for your office? traders making 500k-1m a year have avg total writeoffs of 25-40k for everything . i have 3 full trading stations in 250 sf and its plenty of room. that will be disallowed. question is will they go back on your previous years and adjust it? were you audited for trading before? if so why?
Would you be interested in renting space out in the office and having other traders around. I am interested in moving out of the corporate headquarters I currently trade from and moving to a city and renting space where I can work alongside fellow traders.
I think they (IRS) suspecting that part of the unit is being rented out and no income is being reported. How much would it cost to rent a smaller place? Probably much more than what you pay now.
mcat, Total expenses, less margin interest have run $20-25k/year. I am in the range (500k-1m) that you note for traders "avg 25-40k for everything" You say you use 250 sf - but that probably doesn't include some shared use of restrooms, kitchen facilities (you eat lunch don't you?), and parking. As I said, some I am sure use and spend less, but I suspect some use about the same or even more. The agent has stated that she will not go back for prior years. I was audited twice before. Once I got a "No Change" letter and the second resulted in a zero "Balance Due."
max i've used the top trader accounting firm in america for 8 straight years and i'm telling you they'd shit if i wrote off 25k for my office or home office. no they'd not sign the return. what the irs is telling you is they don't care what you say. the bottom line is 1 trader can't use 2000 street to day trade. whats to stop me from buying a 5000 square foot office at 100k a year to write off? you have no other traders and you have no clients so its impossible to need 2000 square feet of office space. bottom line is you don't need 2000 square feet of office space to day trade. your thumbing your nose at the irs making them look stupid. its like a day trader writing off 50k in milage a year and he has no clients.if you make 500k are more a year whats the big deal? just bite the bullet and write off 8k a year as office use.
dunno about where you live, but if i'd have to rent a small office i'd pay more than 25k per annum. also in the context of 500k-1m trading profits a 25k cost for offices doesn't look unreasonable. hell, you'd pay that amount for a single bloomberg terminal. oh, btw. i use about 80 square meters for my home office (860 square feet). fortunately i cannot deduct any expenses as trading income is tax free over here