"trader status" for IRS
someone asked me in private about this
I thought I'd respond in public
but, I have no idea if I am right and caution everyone to get "real" advice before considering this
extracts of the PM:
>>>have heard many pros and cons.
for me I only see "pros" but there may well be cons for many people
>>>according to folks that claim to have knowledge of the tax laws, is trader status is a red flag to the IRS and you're asking for an audit. My opinion is as long as you have records of all allowable deductions you should be ok
I in no way want an audit but my taxes are "clean"
I frankly don't think it is worth the risk to mess around to save a few bucks, as much as I hate giving the IRS a penny
the deductions I take are straight forward:
isp + phone lines
quote and data service costs
financial subscriptions-dead tree as well as on-line
office costs; paper (BCT), pens, ink, etc (I do not take a home office deduction, not worth the audit risk)
equipment, computers, monitors, etc
ie, whatever I use in my trading job
>>>there is no absolute definition of what a "trader" is
I think that this is true
but it is defined enough that if one really is a full time trader one should be ok on this
I make 1000's of short term trades and spend 10-12 hours at this a day; have the records to back that up
>>>In order to file trader status does trading securities have to be your primary source of income? In other words can someone have a 9-5 job and trade on the side and still file as trader?
I'm not sure, but would think that if the income from trades is a significant % of your total income (maybe 60% or more--a guess) that you would be ok
I switched to trader status once my trading income significantly exceeded my consulting income
>>>Plus can you have "long term" stocks(hold period for 12 or more months) along with short term trading? Separate accounts for each?
I have a number of accounts, in addition to my "day trade" account, which are many times greater in size (I keep my day trade account "small", mainly because that does not allow me to get big stupid on a fast trade and blow a bunch of money, something I had been know to do in the past)
the other accounts vary in duration for trades--some day trades, some for multi year holds
but they are all tax deferred vechicles-rollover IRA, SEP-IRA, IRA
I don't see any conflict between being being a "trader" for tax purposes while doing long term investments in other accounts
I hope this helps but please do not make any tax decision based on what I or anyone else here posts |
