If there are any individual traders on this site that have filed for IRS trader status, would you provide your opinion of this method of tax filing and how it has affected your trading? How worthwhile is the filing of investment expenses since the majority of a trader's expenses is in commissions and that is figured in cost basis of the securities? Does having trader status tend to make you more of a short term holder with a tendency to overtrade and making wash sales useful? How does MTM affect your end of year trading strategy?
Futures traders are already MTM. Anybody can elect mtm. Trader status is useful if your expenses are high. Office space is a red flag but if it is legit that is probably the main expense. When they first came up with trader status that is the way I filed, but my account was small and I was buying a lot of software and trading related things. My expenses today could be written off but really more trouble deciding how much is trading and how much is for personal use. if you have a bonafide trading expense not currently deductible then trader status is simple to file and useful. I just sent the IRS a couple of pages of trades as an example of my trading style and that was it.
1) "Trader Status" does not affect your trading. It's the other way around. Your trading determines (in the eyes of the IRS, and only if you and/or your entity elect the status) whether or not you are qualified for trader status. Trader status is not the same as MTM. They are 2 different and separate taxpayer ELECTIONS. Entities, not only individuals, are taxpayers. 2) Trader status has 4 primary benefits IMO. a) Wash sale rules do not apply to equities and derivatives treated/taxed as equities. b) Full range of business deductions, credits, and expenses. c) Trading losses are not subject to only $3000 annually. d) Trading by IRS definition is un-earned income. Without trader status, earned income is not possible. Therefore, without trader status and only 1099 income, retirement accounts can not be funded, health insurance and other types of benefit costs are out-of-pocket, and life in general is a pain in the ass. https://greentradertax.com/shop-guides/greens-trader-tax-guide/ Be sure to poke around the site and read some posts.
was not aware of c) and d) Man, I need to take another look, when did they do that? I could use a roth right about now.
An individual/joint tax return "investment" loss of $3000 annually has been around as long as I remember. Remainders can carry over, but deducting the loss is capped at $3000 annually. And earned vs. un-earned income, has been around forever. Un-earned income can not be used to fund retirement, and many other limitations. 1099s are un-earned income
yes, but I was not aware trader status negated 3k cap or allowed trading cap gains to be treated as earned income.
Trader status is required in order to be a "business" in the eyes of the IRS. It is up to the "business" to disperse the business income(ie cap gains) as earned income. Businesses are not subject to the 3K cap gains deduction.