Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : IRS, Tax related strategies--Traders -- Ignore unavailable to you. Want to Upgrade?

To: Colin Cody who wrote (598)	12/5/1998 1:22:00 PM
From: Mark Z	Read Replies (1) \| Respond to of 1383

Colin - If I'm correct you recently opened an account w/MB Trading and hopefully!) are familiar w/their commission structure. Let's assume I make 25 trades in a month. I get a $1 rebate per trade and $200 knocked off my data fees. Tax-wise, how are these handled? I'm assuming the $1 per trade rebate is applied to lower the commission on a per trade basis. I.e. if I gross $200 on a trade and would have netted $154.10 (assuming $22.95 commission each for buy/sell) I now net $156.10. Or does the IRS consider this 'earned' income reportable as 1040 income, 'earned' by virtue of my trade volume? So far as the data fees, do I amortize whatever rebate I get over each trade made in the month, given that the rebate is a function of the # of trades, or just reduce my Schedule A expense for data fees or, again, is this 'earned' income? Thanks in advance for any light you can shed.

To: Colin Cody who wrote (598)	12/5/1998 4:10:00 PM
From: Gary Metzer	Read Replies (1) \| Respond to of 1383

Colin et al, Re : Trading within a 401K FWIW, I'll pass on what I've been doing this year which has worked out nicely so far in dealing with trading and taxes. I "retired" from my job of 16 years this past April (aged 40) and decided to pursue managing my investments full-time including doing some trading on the side. I took my entire 401k plan (pretty good size) and rolled it over to a Charles Schwab IRA (Schwab for Security). I then made a "substantially equal withdrawal" election (SEW) which allows me to take money out of my IRA without incurring the 10% penalty for early withdrawal. What I do is take my 401k value as of December 31 of prior year and amortize it over my life expectancy (age 83) at 10% (averaged 25%+/- over past 15 years, so IRS shouldn't find this number unreasonable). I then set up my SEW withdrawal to automatically transfer my annual allottment (divided by 12) directly to my checking account. As long as my yearly return exceeds 10%, then every year I am giving myself a "payraise" as the balance is recalculated each December 31. Any excess money I end up having in checking goes into daytrading. This has proven to be a very nice way of combining security and growth with the need for a fixed income stream. Any trading done in the IRA is totally devoid of any tax considerations. This continues until age 59 1/2 when penalty is no longer a concern. All income withdrawn from IRA is taxed as ordinary income at either 15% or 28% rate (depending on deductions). Also note that the IRS guidelines for this method are extremely vague and widely open to interpretation. [My original plan was to grow the IRA only and take drawdowns when needed, but I really wanted to avoid the 10% hit (and heartaches such as this summer's fall and rise) and this method accomplishes it beautifully.] If anyone has any questions on how this method is working, please PM me. I am NOT a CPA or tax professional, so if anyone more experienced sees problems or concerns they might have in what I am doing, please advise. Thank you. Gary