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Tax relief for "traders"
Rgreen@greencompany.com
greencompany.com
Tax relief as a "trader" - If you have lost money trading securities (stocks, bonds, commodities, options), and your qualify under the tax code as a "trader" rather than as an "investor", you are entitled to significant tax relief.
The new tax law of 1997 enhanced the tax benefits of a "trader." Many people who actively trade securities over the Internet as a second trade or business may qualify as traders. A lot of confusion exists among active traders over the tax rules. Some traders are under the misconception that one must either be classified as an "investor" or a "dealer" (a professional in the business of buying and selling securities to others). We have prepared a full 20-page tax research report that clearly explains the differences between an "investor", "trader" and "dealer", how to qualify as a "trader", and all the benefits to being a trader.
Here are a few of the significant tax benefits to being a trader - A "Trader" can deduct unlimited trading losses (realized and unrealized) as ordinary losses against all their other taxable income. An "investor" is limited to deducting only realized losses up to a maximum net capital loss of $3,000 per year. A trader may deduct all their trading business expenses as ordinary losses (above the line) including margin interest expenses, computer equipment for trading, Internet expenses, research and other similar dedicated trading business expenses. An "investor" is limited in deducting margin interest as an itemized deduction limited to investment income. Investors may only deduct qualified and limited investment expenses as miscellaneous itemized deductions subject to the 2% AGI limitation and 3% itemized deduction haircut. An investor gets long-term capital gain tax rate treatment but this it not relevant if you are trading during the short-term. A trader may identify certain securities as investments to get the long-term tax rate benefit. So a trader gets the best of both worlds.
Tests to qualify - All these tax benefits sound great, but the key thing is that you really conduct a trading business and qualify for the trader status. There are no objective tests (number of trades) that determines whether you qualify. It is a subjective test based on your facts and circumstances and your intentions to conduct a trade of business trading in securities.
Here is an example - If you have trading business losses of $50,000 and other ordinary income of $150,000 (e.g. from full-time employment wages or self-employment income), your gross taxable income is $100,000 as a trader, but it's $147,000 as an investor ($3,000 limitation on capital losses applies). As a trader with marginal tax rates of 40% (federal and state), your tax savings is $19,000 more than investors are.
As Barron's wrote (in their December 8, 1997 article, "Who's a Trader"), "Securities traders, who get a better deal from Uncle Sam than mere investors (traders, unlike investors, get unlimited deductions for investment interest and other trading expenses) have just been awarded a world-class bonanza: From out of left field, and with remarkably little fanfare, the 1997 Taxpayer Relief Act gave traders the option of reporting on a mark-to-market basis-essentially to recognize gains and losses on securities held at the end of year as if they were sold on that day-an opportunity for major cuts in their tax bills."
Here is an example of a new client we just helped from these stock message boards. John Doe (real name is confidential) is a communications engineer working full-time at a communications company. John operates a second business trading in securities. He spends a lot of time, energy and expense trading in securities for his own account looking for short-term price changes rather than long-term income and appreciation. He closely follows trends and developments in the communications markets. John has a self-directed Internet trading account with no involvement from a broker. John exploited his knowledge of the communications industry as a communications professional to actively trade communications stocks as a second trade or business. He had all the tools of a trading professional at home and at work using the Internet.
In prior years, it was not as easy to establish a trade or business in trading securities. Advances in the Internet, PC hardware and software, and on-line stock brokerage firms have made it easier to conduct this trade or business.
We are tax specialists and are experts in this area. If you are interested in learning more about the rules of being a "trader" send us an email to rgreen@greencompany.com
We have prepared a full tax research report on the "trader tax status", which backs up the statements we made above. If you would like this 20-page report, kindly send us a check for $25. If you are interested in consulting with us on this trader tax status and to discuss whether or not we think you qualify, our fee is $75. The fee covers a half-hour consultation, which can also include other aspects of your tax return if you wish.
If you would like to order the report and our service, kindly mail a check to "Green & Company, Inc." for $25 (report only) or $100 (report and consultation, $75 plus $25) to 415 East 37th Street, New
York, NY 10016. |
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