Does the IRS audit Traders frequently ?

H

hayman

I'm a relatively new trader (just over one year now), and I was wondering if anyone has had problems with the IRS, while claiming Trader status ?

- I claim trader status
- I have impeccable trading records
- I claim all my biz expenses on Schedule C
- I to not write off Health Insurance on my Schedule C; only
on amount over 7.5% of AGI on Schedule A
- I do NOT write off my mortgage, since I don't have one
- I do write off electric, oil, and all other expenses

Anyone have any stories they care to share ? Just curious to see if IRS has it out for us Traders these days....
 
The fact that traders generate huge 1099 sales, would make one think that the irs would be looking at traders very closely. However, I have filled trader status for several years now and have not had any inquiries. I have been very curious to know when the irs is going to require clearing firms to report all purchases as well as sales in an effort to try to match up a traders activities. The current method certainly opens the possibility for traders and any market participants to fudge on their cost basis reports when there is not a 1099-purchase matched up with a 1099-sale.
 
I have traded over 20 years and have had wild swings year over year in income and have never been audited. Just be very consistant in how you report.
 
A couple years ago Interactive Brokers put gross profits on the 1099's (and didn't deduct commissions). That triggered an audit for me. Curses on Interactive Brokers' accounting department!

The auditor was quickly satisfied that I was indeed a Sch. C trader, but it took a lot of paperwork and back and forth to convince him that I didn't have to pay self employment tax on my profits. I should have billed the IRS for teaching the tax code to one of its employees!

The end result of the audit was the IRS got $13 more from me. I still don't know where they got that number but finally I just wrote the check and let the examiner have his Pyrrhic victory.

After going through the audit my sense is that out of the subset of people with strange things on their returns, the IRS targets the highest income people for auditing. The IRS is in the business to make money. Your audit chances are probably directly proportional to how successful a trader you are.
 
I have been a commodities and equities trader since 95 and have not been audited or questioned on anything.

Keep your records current and together and you should not have any trouble. Also, keep a daily log or journal which shows your market activity. In it I have a print of the chart I traded with entries and exits and other pertinent info.

Best of Luck,

MK
 
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