What's a K2? Do you mean K-1??? Let me guess....assuming there is any profit to be had you take a tiny W2 salary and pass the rest of equity "distributions". Am I right?
well let's try this, all things being the same, will trader status alone give me earned income? Never heard that one before, but it's been a while since I looked.
My typo, K1 is correct. You are correct except there are rules and laws that require "competitive" wages, or have the entity disregarded, losing all tax benefits. My wages are not tiny or even small. The employer pays SE tax, as do I though payroll deduction. Distributions, bonuses, and certain employer paid or provided benefits and reimbursements are also allowed.
No. Although, a Schedule-C trader COULD then use the techniques and footnotes as implemented by Green to convert business income (ie cap gains) into earned income. Green has been doing that successfully for years with clients, where appropriate. I did it about 15 years ago with no probs.
I understand the deductions of expenses. You have misunderstood my posting. I was concerned about whether one normally would have sufficient expenses to justify filing for trader status above and beyond what one normally could deduct. Of course, that would depend on each individual and his amount of expenses. Trading status has everything to do with the amount of trading one does. You have to be an 'active' trader in order to qualify and maintain trader status with the IRS. I could see where one could easily overtrade in order to meet the IRS guidelines for trader status. Yes, I know all positions are considered to be closed within the current tax year and new cost basis established. That was the reason for how would this might affect one's trading strategy.
GreenTraderTax coined the term “trader tax status” (TTS) in the late 1990′s, and we’ve focused on trader tax benefits ever since. By default, the IRS considers traders to have “investor tax status” with restricted Section 212 investment expense treatment, capital loss and wash sale loss limitations, and no opportunity for employee benefit plan deductions. TTS is the linchpin for using Section 162 business expense treatment, making a timely Section 475 election for exemption from capital loss limitations and wash sale loss adjustments and unlocking employee benefit plan deductions including health insurance and retirement with an S-Corp. The IRS recognizes TTS, but it does not provide a bright line test for qualification. That’s where we come in with “Green’s Golden Rules For TTS Qualification” based on our extensive analysis of trader tax court cases and dozens of years of experience preparing tax returns for traders around the country. There are three factors that don’t qualify for trader tax status: (explained in more detail in the guide) Automated trading without much involvement by the trader Engaging a professional outside investment manager. Trading in retirement funds. I am not affiliated in any way with GreenTraderTax company or products. I have however, had consultation in the past, as a paying client.
"d" is incorrect. Trader tax status has nothing to do with whether you can fund an IRA. Forming an entity does.
What is the rationale behind 1.? That doesn't seem to make logical sense to me. If I work 8 hours a day on programming an automated trading system that made many trades a day, surely I would be considered a trader in terms of the IRS.