k-1 and Deduction-TAX QUESTION

Discussion in 'Taxes and Accounting' started by SGD, Apr 8, 2002.

  1. SGD



    I trade with a prop. firm and I will receive a K-1 at year end.

    1) Do I need claim Trader Status by 4/15/02 for next year, even
    though I am with a prop. firm and I receive a K-1??

    2) How do I deduct 100% of my out of pocket business
    expenses that I incur. On a schedule C? Can I do that with
    my income classified as capital gains?

    I realize that I could possibly submit expenses to the firm,
    they will pay them, and deduct it from my K-1, but, what if I
    pay those expenses directly myself, how do I expense them
    on my tax return??

    Any advice would be greatly appreciated. Thanks
  2. trdrmac


    I don't think that the K-1 or prop firm changes anything and am fairly sure you would file 3115 by April 15, 2002 for next years taxes.

    As for the expenses you would deduct it on Schedule A along with any margin interest. However, it is subject to a 2% floor which means if you made 100K last year your first $2000 in expenses are not deductible. Obviously, the better method would be to have the firm reimburse you which is more of a wash. This all assumes that you have expenses that exceeded the standard deduction.

    Best wishes
  3. trdrmac


    This is a little delayed, but I looked into your question just a little more a few minutes ago. There are no hard and fast rules that classify what constitutes a trader. However, if your income last year was substantially from short term trades you may be able to safely claim all of your trading expenses on Schedule C.

    So I guess the question you need to ask is how much income came from just trading and how much in expenses you incurred. If there is any chance of audit, I would go the SCH A approach this year, if not then may as well use the SCH C.

    This probably was not the definite answer you were looking for, but if you do need any help with A or C feel free to ask.

  4. Can a trader receiving a K1 deduct -- health insurance premiums from self-employment - which is line 28 on the 1040 form -- under adjustments to gross income -- or because we are not paying self-employment taxes are we not entitled to his deduction -- and can we only deduct health insurance premiums under itemized deductions which then must be greater than 7.5% of AGI -- thanks ----
  5. anyone ?
  6. Word of caution...EliteTrader is populated by both professional and amateur traders. I would guess that there are few, if any, qualified tax advisors.

    Your best bet is to ask these questions of either your own accountant/CPA/tax preparer, or go find one that has experience with professional traders.

    There are several firms that specialize in working with prop traders. One that comes to mind is www.greentradertax.com. I haven't used them myself, but this might be a place for you to start.