475f of tax code - Trader status question

[midlifeguy]

Curious..
If you have $5,000,000 proceeds,
cost basis of $4,800,000 and expenses of $25,000,
how would you account for this assuming you changed your accounting status?

Schedule C - Sales $5,000,000
Cost of Sales $4,800,000

Expense listing by category - $25,000

Net income $175,000?

So you list nothing on Schedule D? And you pay zero self employment tax? And you can write off 100% of health insurance?

Can you also then fund a SEP?

 

[mss]

I think that, if you have trader as opposed to dealer status, your gains and losses are still capital gains and losses reported on schedule D. It is possible that you would not have any gross income on Schedule C but you could still take whatever deductions on schedule C that you are entitled to as trader.

 

[whitster]

false. if you are a professional trader status, your gains and losses are reported as INCOME not cap gains

 

[traderstatus]

Quote from mss:I think that, if you have trader as opposed to dealer status, your gains and losses are still capital gains and losses reported on schedule D. It is possible that you would not have any gross income on Schedule C but you could still take whatever deductions on schedule C that you are entitled to as trader.

mss is correct (assuming no M2M election was made), and further, since only expenses are reported on the Schedule C, there's likely no earned income to allow the taxpayer to make a SEP contribution for the year or deduct health insurance above the line.

To get around that little problem, a taxpayer can form an appropriate entity to do the trading and the entity pays earned income to the individual... The entity can also elect M2M, if desirable.