I came across a CPA's web site Traderstatus.com. It really has lengthy articles on how to claim "trader status". My understanding of the subject is: as a trader one can deduct all the expenses that you may not be able to deduct as individual, can contribute to pension plan. That's it. But you pay tax as ordinary income, even on the long term trades. This is specially important for futures traders. Futures are treated 60% long term. But as trader you report every thing as ordinary income. Under what circumstances would you have to pay FICA. There are many "professional traders" here. I would appreciate if you can shed some light based on how you do things in your practice. Thanks.
Anyone who is better educated than me here, please don't hesitate to correct me. I did not declare trader status, but spent some time in the past looking into it, and I recognize amateur tax advice is usually a bad thing. Most here, especially me, are not qualified to offer the advice you need. So, with the above caveat, I believe your read is correct. Three additional things: 1. FICA is paid under self-employment tax, which you pay if you do not declare trader status. 2. A second advantage, only for stock traders, of mark-to-market accounting (which people often declare along with trader status) is you get to avoid the wash sale rule. This never seemed like a huge issue to me, except for the onerous paperwork, but I've switched to futures and received a K1 before. 3. Even if you don't declare trader status and are not incorporated, you can still contribute a lot to an IRA for self-employed individuals
there is little benefit to file as a 'professional' trader if you trading your own account. in the big scope of things the market doesn't care if you are professional or amateur..the only the tax man looks at is your net profit/loss.. only professional you can deduct expense and once yo do that you get audited by taxman for giving them any tax writeoffs. there aren't that many professional traders who make money so you trader status will be red flag at th tax office. there are lots and thousands of amateur casual traders trading their own account. if your report profit as 'business income ' professional trader status you can deduct expenses....but you pay higher tax in business income.
1) If you haven't already, look into tradersaccounting.com and greentradertax.com for additional info. 2) Go to the Mirus Futures website and listen to the webinar from April 6, 2010 on the subject of trader taxation. You may get some good morsels and tidbits from it.
For trader making lots of trades it can make a tremendous difference. You can write off your commissions. You can write of your expenses If you set yourself up properly you can minimize fico and ssi taxes or You might even be able to characterize your trading full time trading as capital gains taxes instead of income taxes and pay not fico and ssi. If you really make a lot of money... you might consider have the res of a fund in a state with no income tax and just pay yourself and perhaps a part time trader a salary in your state. (this one is probably tough). They can be lots of other esoteric and aggressive moves to make. The main ingredient being profits. Also if you take the time to do it right. You need to go to seminars for education right. You might have two offices one might be near a ski slope or a beach. If you have trader status and you are profitable, you can really make trading work for you.
commissions are deducted anyway. regardless to your status. trader or individual..capital gain=profits-expenses(aka-commissions) expenses..yes..but how many do you really have as an individual or "trader"? you can't deduct 100% of your high speed internet for example. or phone. office space? common..read irs site for proper procedures for deductions above,you will be less enthusiastic. talk to cpa? most of them know nothing about trading. i mean-NOTHING. short talk to the lawyer going to cost you good chunk of your profits(but you maybe able to deduct this expense) if you file as an individual average joe -you don't have to worry about fucking fico or ssi(have no idea what fico or ssi have to do with trading). you probably mean SS tax? if expenses are really high- i would open an LLC instead. open an account and trade a bit,just to cover those expenses. M2M,wash sales and unlimited losses are whole different story
If you are computerized all your tech... Most car trips you take are "business trips"... If your mom lent you $1,000... Visiting your mom is a "business trip", etc... You can turn almost anything into a "business expense"... But you must have INCOME... and you must DOCUMENT it well. Any remotely successful trader... Should be able to write off close to $50K/year. And you MUST get a CPA or CA level accountant here... No "bookkeeper" types... or you will has your ass AUDITED... And you MUST run all this through a Corporation or LLC. You will still be paying tax at personal rate... But Corporation lets you defer and smooth out taxes... Let's you hang on to your capital longer... You can pretty much chose your tax amount most years.
The important advantage is for regulated futures and not equities. With the futures you get blended capital gains tax treatment, which is capped at several percentage points less than the upper tax brackets for ordinary income.
sure..You can turn almost anything into a "business expense"... it's will be all good, until taxman come to your house to talk about how your mama lend you a $1000..(btw-she have to file and pay taxes on this loan. you know that,right?) go head,read about requirements on car expenses deductions(make sure you have a log with all your trips and purpose of every trip) and then-try to convince a tax man that you have to go some place every single day and it's a "business expense",while 100% of your actual business is done from your home. yep..use corporation and pay double in taxes..wait..not double..triple..since you have to pay SS tax too..listen..all this will work just fine for a carpenter or plumber..but not for a trader..