Taxes for prop traders

Discussion in 'Taxes and Accounting' started by kcgoogler, Mar 7, 2012.

  1. I am reading up a few threads but thought would start a thread to get people talking.

    So from what i can tell, for a prop trader who gets a K-1, taxes are pretty straight forward. Its all ordinary income. So taxes are kind of straight forward. Any comments?

    If you have losses in other retail accounts you can deduct $3000 for the current year and carry over the rest; but if you have chosen MTM and trader status you can write off more if you have.

    As for profits, its all ordinary income. I think its a good thing in certain cases; for example if you are in a lower tax bracket instead of paying short term capital taxes rate (say around 35%), you are paying your lower ordinary taxes rate (say around 15-20%).

    Also very frequently i read threads on complex tax matters and it ends with - get in touch with a good tax attorney. How do you find good ones for prop traders without breaking the bank..

  2. I've been doing this for 8 years under every various methodology (retail, institutional, sole proprietor, prop).
    A "great" start would be to buy the book by Robert Green "The Tax Guide for Traders". Then go to his website and also read his blogs over the last few years posted on the website. This should give you about 95% of what you need.
    There is an election described in the book that you may be interested in taking if you have trading losses this year so far. The forms must be absolutely, positively filed correctly by April 15, 2012, followed up some other tax forms. I strongly suggest you "do not" do these forms yourself, and do not wait to the last minute.

    Kindest Regards and Good Luck
  3. I think I endorsed that book on the back cover, not sure, LOL.

    A lot of "stuff" for retail, the prop part is pretty straight forward. MTM based on earnings, exempt from FICA.


  4. Thanks for all the responses folks. And no flashgordon; i luckyly dont have losses for last year :). I recently started trading prop and was just looking for advise or what others do.

    So i assume most other just go to a tax attorney. How do you find good ones; i once went to a tax attorney (H&R block guy) and he had no clue. I had to explain how i can sell without buying first :).

    So FlashGordon, what do you do personally today? Just let your tax attorney do the filing? How much does it cost roughly if you dont mind giving the numbers..


  5. PM me and I'll give you one of the best. He's in Chicago, been doing our taxes for years.

  6. Like Don said, prop trading is pretty straight forward without all the IRS filing requirements "only if" you are a "member" of the prop firm (receiving a K-1),

    If your arrangement is otherwise, heed the warnings in the book I recommended, and you need an accountant who knows day trading. Most accountants "think" they can figure it all out. You want someone who has done this dozens of times (correctly...I'm not kidding here) before.

    Green Tax can do it or Don can probably recommend a few.

  7. just for curiosity

    What is the tax rate for trader in US?
  8. Disclaimer: I am a trader. I am neither an accountant, lawyer, or publisher.
    And, I'm not going to be able to give you a very complete answer here.
    If you mean personal income tax rate, the answer is not very simple.
    It could all blend in with your entire income stream. If you qualify as a retail day trader under the very strict IRS requirements it can be entirely tax exempt.
    The cheapest money you will spend will be buy a new or used copy of the book I mentioned earlier "or one that is similar", and consult a competent accountant like Robert Green who understands day trading or IM Don Bright for some names, as I really don't want to be put in a position to recommend or endorse anything more specific.

    Kindest Regards
  9. Thanks everyone for the nice mention.

    I just added lots of new content on prop trading firms in Green's 2012 Trader Tax Guide. See a summary in our free Trader Tax Center. We cover many of the tax issues that come up these days.

    You are all welcome if you need tax prep help, too.
    #10     Mar 8, 2012