How does a swing trader get any sort of a tax advantage? I am unemployed and looking to get the maximum tax advantage for next tax year. Heard of trader in securities status and filing as a corp. but don't know which is best. Please help.
If you trade actively and with the intent of earning a large portion of your income, you can file as a "trader in securities". You can deduct all trading expenses as a business expense (equipment, home office, courses, etc.), and you pay no self-employment tax. A very nice arrangement. No need to form a corp entity unless you are making serious dollars and want to do retirement plans, etc.
I don't think you have to be a corp to do a SEP IRA or KEOGH do you? With SEP you can defer up to 15% of your income and with a KEOGH I think it is 25%, but I think the corp has many other advantages if you are generating allot of income and are looking for shelters or deductions that would not be allowed for individuals.
Trader Status aka MTM or Marked to Market Status requires very active trading. He mentioned "swing" trading. The IRS does not view swing trading as a profession and therefore not possible to be a MTM trader. My accountant, who has several hundred trader clients, said if you trade 5-10 round trips a day everyday you are Borderline MTM and can get away with it. If you trade say 5-10 times a month, you are NOT a trader but an active investor. You need to Register as a "marked to Market Trader" by April 15th of the year prior to achieve MTM status anyway. So you are an individual until next 4/15 anyway. You can still deduct expenses as an individual, they are just subject to 2% exemption, just take more! Check out the numerous threads on this site on this subject.
Trader status and MTM are two issues which are mutually exclusive. One need not be an MTMer to maintain/obtain trader status. Ask any profitable futures trader why MTM is a bad deal (no 60/40 cap gains), yet they have Trader Status...... Later, Cracked
I trade mostly Futures and some Equities. I am very happy with my individual filing status. But thanks for the help! ebo
Just because you have not or chose not to elect MtM has nothing to do with whether you choose Trader in Securities as your occupation. So even though the 4/15 deadline has passed, you can still be a "Trader in Securities" and deduct expenses as a trader without the 2% limit. Your accounting method just won't be Mark to Market for this year.
You are correct Hedg!!! This is one of the best boards for traders on the net, however, lots of bad info floating around regarding tax treatment for achieving trader status. I have clients who trade as little as 2 round trips a day and have trader status. It isn't based upon an arbitrary number of trades you make, it's about the approach that is used to arrive at the trades, timeframe from entry to exit, time spent working in the market, etc. Have a profitable and great day everyone. Later, Cracked
Once declared MTM, you are MTM for subsequent tax years. No need to refile every year. If you no longer want MTM designation, good luck. It basically takes an act of god to reverse the designation. The IRS look upon the election of MTM status as irrevocable. Later, Cracked