Can IRS force Trader Status?

[DarthSidious]

Okay. Quick googling reveals https://greentradertax.com/category/trader-tax/ which does lay out 720 trades as a "qualifier". I am NOT trying to get trader status. I am only interested to find out if IRS can force it on me, because say, I did 2k r/t futures trades.

And I believe for a futures trader claiming 60/40, it is bad for me to treat it as regular income

 

[DarthSidious]

Wrong, trader status does not permit cap gains to be treated as earned income. Trader status allows traders to deduct their trading expenses and that's all. IRS would prefer you not file as trader. It's a gift from our benevolent government bestowed upon us when everybody and their grandmother was quitting their jobs and day trading.

So, what does all the market-making types do? I believe they do this as a "job" and treat everything as earned income. Just being able to deduct expenses isn't that big a deal for a smaller trader. Need earned income to deduct against for all other tax deductions.

 

[Zzzz1]

Not accurate. There are plenty other advantages such as larger and longer term loss carry forwards if I remember correctly.

Wrong, trader status does not permit cap gains to be treated as earned income. Trader status allows traders to deduct their trading expenses and that's all. IRS would prefer you not file as trader. It's a gift from our benevolent government bestowed upon us when everybody and their grandmother was quitting their jobs and day trading.

 

[Zzzz1]

You can have 100,000 trades and not have to file with trader status.

Okay. Quick googling reveals https://greentradertax.com/category/trader-tax/ which does lay out 720 trades as a "qualifier". I am NOT trying to get trader status. I am only interested to find out if IRS can force it on me, because say, I did 2k r/t futures trades.

And I believe for a futures trader claiming 60/40, it is bad for me to treat it as regular income

 

[dealmaker]

That's not what the irs says. I read the section a few weeks ago and am hence pretty certain there are no such terms attached.

Words of caution on TTS

Many IRS and state agents don’t understand or respect individuals pursuing qualification as a trading business. While there is no bright line test for TTS, recent trader taxcourtcases better defined the volume of total trades required (720 per year per Poppecourt), frequency of trades (3-4 days per week) and average holding period (under 31 days per Endicottcourt). Once an exam starts, it can snowball into other issues. IRS and some state agents often want to challenge TTS if the trader is not a full-time, extremely active trader. And the IRS or state agent can ask about TTS and other issues for the years before and after the tax year examined. Learn tips for dealing with the IRS and states in Chapter 10.

In the past, too manytradersbrought weak cases to taxcourtand have failed to defend themselves properly. That was certainly the case again recently with Poppe, Assaderaghi, Nelson and Endicott. Serving up easy wins in exams, appeals, private letter rulings and taxcourtencourages the IRS and states to further question businesstradersbased on bad legal precedent. When TTS is too difficult to achieve, consider the alternative strategies discussed in Chapter 9. It’s also very important to have good CPAs and tax attorneys who are experts in trader tax law in your corner.

Watch out for bad tax advice: Over the years, other service providers suggestedtraderscould easily deduct pre-business education expenses using C-Corps. This advice is very wrong. We cover what’s allowed and what’s not in Chapter 5.

https://greentradertax.com/greens-2016-trader-tax-guide/

 

[speedo]

As long as you file section 1256, you should be fine

 

[java]

So, what does all the market-making types do? I believe they do this as a "job" and treat everything as earned income. Just being able to deduct expenses isn't that big a deal for a smaller trader. Need earned income to deduct against for all other tax deductions.

Form an entity, entity pays you earned income, but now you owe se tax. Your futures are taxed at 60/40 no matter what you are and how you file. The entity pays 60/40 or the trader with trader status pays 60/40 or a guy with a job who posts on the internet pays 60/40. I can't think of anything you could do to lose your 60/40 futures rate.

 

[sprstpd]

Had an argument with a friend and so I am turning to ET hivemind for opinion. We know that if we want to treat trading income as earned income, we have to file for Trader Status.

The question is, if we do not elect it, and trading was my sole source of income (it isn't, but lets assume it is for arguments sake), can the IRS force me to treat it as regular earned income?

No.

 

[Robert Morse]

Yes, but I trade futures only, and 60% of my profits are long-term. Only 40% is short-term - so it will make a huge difference for me.

Check with you tax expert to confirm, but all futures trading is MTM so no trader election is needed.

And for equity/option trading, it is an election on your part, not required.

 

[Zzzz1]

Ah? What about deductibility of business related expenses?

Check with you tax expert to confirm, but all futures trading is MTM so no trader election is needed.

And for equity/option trading, it is an election on your part, not required.