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Strategies & Market Trends : IRS, Tax related strategies--Traders
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To: RookieTrader who wrote (464)8/23/1998 12:35:00 AM
From: Kaye Thomas  Read Replies (1) of 1383
 
Income produced by the trading activity of securities traders isn't subject to self-employment tax -- whether you elect MTM or not. Prior to the MTM election, trading profits were always capital gain, which is specifically excluded from the definition of self-employment income. The advent of the MTM election raised a question about whether electing traders would be subject to SET because their trading profits are treated as ordinary income. Congress resolved this question in the recent technical corrections legislation.

As an aside, there's a special rule under which certain options traders can be subject to self-employment tax on their trading profits even though the profits are treated as capital gain, but this rule only applies if they're registered as a market maker or specialist.

I don't want to discourage you from calling the IRS, but you should be aware that the chances of reaching anyone who knows even the first thing about these rules is small. And there's a real possibility you'll reach someone who not only doesn't know the rules, but also doesn't know he doesn't know them, and confidently gives you an incorrect answer. In short, take their telephone (or email) guidance with a grain of salt.

Kaye Thomas, author
Fairmark Press Tax Guide for Investors
fairmark.com
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