Most esoteric situations are dealt with through court cases. This is where a specialized accountant like Green is worth his weight in gold.
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1256 Contracts: Schedule D vs Schedule C
- Thread starter Aisone
- Start date
For you traders whose trading is their sole source of income, are you able to deduct expenses such as market data feeds, training, and costs for running an algo off a virtual server?
Couple of things...
1) By itself, trading being the sole source of income IS NOT qualification for "Trader Tax Status" (TTS) business deductions.
2) By itself, MTM accounting IS NOT qualification (or necessary) for TTS. In fact, TTS is required before MTM accounting would be allowed.
Assuming TTS qualified...
market data: yes
training: yes
Algo/virtual server: maybe.
Important to understand...
https://greentradertax.com/trader-tax-center/trader-tax-status/how-to-qualify/
https://greentradertax.com/trader-tax-center/trader-tax-status/section-475-mtm-accounting/
https://greentradertax.com/trader-tax-center/trader-tax-status/trading-business-expenses/
Couple of things...
1) By itself, trading being the sole source of income IS NOT qualification for "Trader Tax Status" (TTS) business deductions.
2) By itself, MTM accounting IS NOT qualification (or necessary) for TTS. In fact, TTS is required before MTM accounting would be allowed.
Assuming TTS qualified...
market data: yes
training: yes
Algo/virtual server: maybe.
Important to understand...
https://greentradertax.com/trader-tax-center/trader-tax-status/how-to-qualify/
https://greentradertax.com/trader-tax-center/trader-tax-status/section-475-mtm-accounting/
https://greentradertax.com/trader-tax-center/trader-tax-status/trading-business-expenses/
This is worthy of pinning.
Nice, thanks. Schedule C is for offsetting business expenses like hardware, software, quote services, professional literature, and so on.If your trading futures you simply put the net gain or loss on Form 6781 with the name of broker. If you have multiple then separate gains and losses. That's all you need to do for futures trading. Not sure Schedule C reference. How is that related? Are you not employed and just trade for a living? If so, there are check boxes you need to check to make sure you can be considered a professional trader (I think mostly based on if you have a separate income).
Yep, all that. You can also use the form 8829 to deduct a certain percentage of your home utilities, rent, (and mortgage interest?), etc, I think up to 20%, depending on how much of your home you use for your business activities.For you traders whose trading is your sole source of income, are you able to deduct expenses such as market data feeds, training, and costs for running an algo off a virtual server?
It's a consideration but not a preference if not necessary.Why not just file an extension, giving you until mid-October to file completed tax forms?
You need to pay the tax now, with the extension, or be subject to penalties. However, the extension is automatic, and no need to proffer a reason. The Federal IRS extension is honored by individual states as well.
I tried to keep it easy as well by just trading futures, but in hindsight turning away from some other things I thought were good things to do sort of haunt me today for not having done them lol.Tax law is increasingly complex, with new rules regularly introduced by bureaucrats out of nowhere. When I have researched some arcane corners of it for my own purposes, I then went down to the local IRS office to confirm my findings. Unfortunately, in some cases I knew more than they did, they did not have enough specialized knowledge on that particular topic! One of my sisters is a CPA and an MBA, and yet she would not have the specialized info you need, without some research.
I have been in futures now for 14 years. For just a regular taxpayer like me, the Form 6781 is incredibly easy, as is the Schedule D, IF all you trade is futures. Together they take only a few minutes. Just one reason I no longer trade stocks, options, and ETF, except in my Roth, where taxes are basically irrelevant, thankfully. But in your case, with sole-prop earnings (475 election) I could not give you a definitive answer.
I suggest either an urgent consult with a true expert in these matters, or filing an extension until you absolutely KNOW the necessary tax law details. Taking the risk is just not worth it. The firm that comes to mind immediately has a nice reputation for extensive detailed knowledge of tax law for traders, including futures:
https://greentradertax.com