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How many of you Day Traders know that you are entitled by the IRS to deduct your entire economic trading losses at year-end December 31, 1997, against all your other gross taxable income? Why pay income taxes if you have market losses? Being in the trading business as opposed to being an "Investor" you can deduct unlimited trading losses, including "unrealized" 1997-year end losses. You can also deduct all your trading expenses including home-office, interest, Internet, computer, publications and other trading expenses.
Day traders are in the business of trading; they are not subject to the limitations and penalties of long-term investors. Investors can only deduct $3,000 per year of realized losses. Investors have limitations on interest and expenses. Day traders can still get long-term capital gain treatment. Therefore, Day Traders have all the benefits of being investors but none of the many tax penalties.
The reason why most Day Traders don't know about these Trader Tax Law rules is that most accountants, Internet message boards, and the financial media have not focused on them. I have read many misconceptions on the Internet about these rules. Some people think in order to qualify as being in the trading business you need to be a Dealer in Securities - that's totally false. Others think you need to be in the trading business as your full-time occupation - again false. Other's look solely to old tax court cases that are now obsolete based on the new trends in on-line trading, and Internet and computer tools available. The current post 1997 tax law research that we have carefully done is very clear on these rules and the IRS tax code does not respect those old tax court cases that say it's hard to qualify. There are no objective tests for qualifying.
There are 4.5 million active day traders on the Internet and almost all of them don't know these rules. Most of them have full-time jobs outside of their trading business. They trade frequently, continuously, and they are very serious about their trading business. Not knowing these rules is a big mistake, especially if you got hit with market losses in the 4th quarter of 1997.
If you want to know more about these trader tax laws and beneficial ways to report your trading business on your 1997 income tax returns, contact me rgreen@greencompany.com greencompany.com |
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