trader status?

Discussion in 'Professional Trading' started by mikeenday, Jun 17, 2011.

  1. mikeenday

    mikeenday Guest

    I heard there is tax advantage by electing trader status? I have a day job earning around 140K and I only became profitable two years back.

    if I make 200K trading stocks yearly (paper profit so far is 100K already), my wife doesn't work full-time, given such condition, what's the best way to go ?

    can i deduct more by choosing trader status?
    any web links that I can click to read more about this?

  2. JamesL


  3. lindq


    With your fulltime job and solid salary, it is likely that the IRS will have problems with you filing for trader status. might consider giving your wife the trader status, if her part time hours don't conflict with when trades are being entered, as the IRS can check if you're audited. She can take the same deductions, etc., without the risk that you would be exposed to in filing.
  4. mikeenday

    mikeenday Guest

    thanks for the eye-opening idea!

  5. lindq


    My pleasure. And another benefit is that your wife will naturally be responsible for all losing trades. Not your fault. :p
  6. the1


    Be careful here. The IRS may look into whose IP is logging into the brokerage account. Are you trading from work? I suspect yes. Keep in mind, lying to the IRS is tax fraud, which is a felony. Since you're successful trading I would recommend you just report P/L on Schedule D and your trading costs on Schedule C. Personally, I wouldn't use my wife as a cover if my situation was the same as yours. Just too much risk if you get nailed somehow.

  7. bone

    bone ET Sponsor

    Please don't solicit tax or legal advice from complete strangers on an internet forum. Pay an accountant who specializes in the investment field $100 or whatever for an hour of his or her time - the expense is tax deductible and well worth it.
  8. Bob111


    read some cases examples on this website. good luck with this idea,while having full time job. what you are planning to deduct anyway? as far as i know-there is pretty much nothing serious in this type of business. couple data feeds,news,maybe PC once a year and magazine subscription...a safe deposit box?..that's about it..
    +1 the1 about wife..couple questions from officers one on one with your wife along with internet logs and you are in really deep shit..
    once again-study this website. it might give you an idea of what you can and what you can't do. everyone's situations is different. it might worth it to elect trader status in some cases and it may not. depends on your style, number of transactions,what you trade etc..just read.
    my personal concern is that once you elect yourself as a trader- i see no way back.and i see a lot of penalties,if you can't meet the requirements regardless.. i was unable to find a clear answer about how do i surrender my trader status ,once i elect it and for whatever reason don't want ot anymore? no one was able to provide an answer. write a letter to chief of IRS is out of questions. no one in his right mind would seriously believe that chief of irs would personally give you a permission to give up the status..
    some relatively high frequency systems did work fine for me for few years and now the amount of trades i produce is 10 times less. is it my fault? no,but IF i was a elected "trader" i have to meet those vague requirements regardless. irs doesn't give a shit about how your system works. substantial amount of trades must be produced every single day. period
  9. look into "general husband wife partnership". it does not require much paperwork and IT may elect MTM accounting if personal trader status is not desirable.

    one benefit is the ability to set aside huge retirement contributions (e.g. SEP IRA ~45K/person limit??)

    it is in Green's Trader Tax book.

    ***disclaimer*** I am not a tax expert and could be totally wrong.
  10. mikeenday

    mikeenday Guest

    very helpful. appreciate it.

    #10     Jun 18, 2011