Jon:
Didn't mean to sound like a babe in the woods. I've been an investor for 15 years (about 5-10 trades a year) and am familiar with 1099s, distinctions between short and long-term cap gains and Schedule D accounting.
The SOES class I took, which I found highly instructive, was with a new daytrade firm in Seattle started by some Block almumni. I have been paper trading with them (they use Wizard-equipped Townsend Analytics RealTick II software) learning the vagaries of Level II access, waiting to see if I really want to make it a full-time gig. I have yet to open an account but when/if I do trades will start at a 100 shares a trade at $5 then 500 @ $15 and finally 1000 @ $25. All who trade there (some 12 people who just graduated from the first class two months ago) use a SOES-specific clearing house called Southwest Securities, have two tax ID #s for boxing stocks, have set up LLCs, pay taxes quarterly, do NOT fill out Schedule D stuff at year-end, and, while they would very much LIKE to have a 28% cap on taxes, are nevertheless compelled, for reasons I do not yet understand, to count all profits from daytrading as regular income. Most have found backers, many are completely new to daytrading and all (I think) are working with a minimum of $100,000 (200K Margined) portfolios.
Now, this is the way it is done at this firm. I have been assuming that the same is true for other daytrade firms, but I don't know. Although Daytek is not a SOES operation and functions, as far as taxes are concerned, like the discount broker I use now, I nevertheless wondered if there was an IRS rule somewhere that made a distinction between trading and investing with regards to cap gains. I now realize, thanks to your response, that you and other Daytek traders keep track of all trades and must account for all gains, losses and washes at year end. Sounds like a lot of work, yes.
With regards to the daytrade firm here in Seattle, my suspicion is that the LLC arrangement allows each trader to be an employee of his own company which counts all trades as proceeds to the company and all profits as regular earnings. I have been pondering the Daytek option because it would allow me to trade cheaply ($9.95 a trade) with quick fills and allow me to get some experience without making a full commitment to a daily trading routine (I have another job at the moment). I would, of course, have no where near the reliability of the T-1 direct nasdaq feed the daytrade firm has, no access to a level II screen unless I subscribed to PCQuote, no one to stand over my shoulder to help me out of a bad trade or system malfunction, no tips from fellow traders. I would, however, be able to get my feet wet and maybe make some cash with my current reserves.
For the time being, I'll take jfoley's advice and read Ted Tesser's THE TRADER'S TAX SURVIVAL GUIDE. Thanks for your response.
E |
