I've put together a trading system, which places about 45 trades a month usually of 2-3 day duration. I started trading it on the Apr. 9th and so far it has generated a profit of $1,444.13 from a $12K margin account. The problem is it only has a win rate of 61.7% and the total gains are $2,760.73 and the total losses are ($1,316.60 ). If I understand right once I have exceeded $3K in losses I will have to pay taxes on total gains thereafter. So just assuming that on Apr. 9th I had already been trading this system 3 mo. and had losses of $3K on Apr. 9th, then for this period if we assume a 30% tax rate on total gains, my after tax profit would be $1,444.13 - (0.3 x $2,760.73) = $615.19, having netted a larger profit for Uncle Sam ($828,22) than for myself. Please tell me that I am wrong, but if I am not wrong how can anyone possibly hope to someday make a living at this? Also is there anything I can do to keep uncle Sam from taking most of my profit?
No. Unless you trade in an IRA. Trader status is questionable unless your doing big money trading. Just keep making money. You calculate the taxable amount based on NET gains, not Gross. 1444 * 0.7 = $1,111 in your pocket.