Estimated Taxes for the Career Trader

[retaildaytrader]

I thought I might bring this topic up for those that are considering being an at home independent trader using IB or another brokerage.

http://www.irs.gov/businesses/small/article/0,,id=110413,00.html

When you go from a job to being a career trader, then there comes "Estimated Taxes". Thats right, you send in a check for what is estimated to be owed to the IRS 4 times a year versus having money deducted from your paycheck or paying the difference once a year to the IRS.

In essence, you can't simply just flip back all of your winnings back into the market. Money has to be set aside each quarter to send to the IRS.

The problem with many of these very profitable journals is they do not take into account quarterly tax payments to the IRS. If someone makes 100 grand in a quarter then almost 50 grand needs to be turned over to the IRS.

Its a complex topic, but basically, if you are a profitable at home trader then you can one day expect to write a check each quarter for what is estimated to be owed to the IRS. The consequences for not doing so are a fat penalty when you finally turn in your taxes.

I am uncertain how institutions and hedge funds that engage in short term trading handle these matters or their tax status, but I am certain that some of these entities might have to crank out a check to the IRS every quarter.

 

[crgarcia]

Quote from retaildaytrader:

I thought I might bring this topic up for those that are considering being an at home independent trader using IB or another brokerage.

http://www.irs.gov/businesses/small/article/0,,id=110413,00.html

When you go from a job to being a career trader, then there comes "Estimated Taxes". Thats right, you send in a check for what is estimated to be owed to the IRS 4 times a year versus having money deducted from your paycheck or paying the difference once a year to the IRS.

In essence, you can't simply just flip back all of your winnings back into the market. Money has to be set aside each quarter to send to the IRS.

The problem with many of these very profitable journals is they do not take into account quarterly tax payments to the IRS. If someone makes 100 grand in a quarter then almost 50 grand needs to be turned over to the IRS.

Its a complex topic, but basically, if you are a profitable at home trader then you can one day expect to write a check each quarter for what is estimated to be owed to the IRS. The consequences for not doing so are a fat penalty when you finally turn in your taxes.

I am uncertain how institutions and hedge funds that engage in short term trading handle these matters or their tax status, but I am certain that some of these entities might have to crank out a check to the IRS every quarter.

Actually most traders lose, so
they don't pay taxees.

 

[Free Thinker]

Quote from retaildaytrader:




In essence, you can't simply just flip back all of your winnings back into the market. Money has to be set aside each quarter to send to the IRS.

yes. you can. paying estimated taxes is not mandatory. failure to file estimated taxes has a penalty that is simple interest. if you have the ability to make more money trading the money than the interest penalty would be for not paying then you are better off paying the penalty. of course if you end up losing money by year end you will not owe any tax in any case.

 

[LongArm]

Vhehn is correct. I never make estimated quarterly tax payments since my annual gains far exceed the interest penalty of 5-8%.

 

[retaildaytrader]

You should not be admitting that you are purposely avoiding or evading taxes in a public forum especially when there is a reward for those who report you. Whatever the law is, how the irs handles it or your personal situation, its probably best to keep quiet on these matters especially when this website keeps records of ip addresses and such.

People, like Richard Hatch, go to prison for such matters. I would not tell anyone to avoid paying their taxes especially when the IRS is stepping up enforcement.

http://www.wkrg.com/raw_news/articl...eral-tax-sentence/459134/Oct-19-2009_7-43-am/

Quote from LongArm:

Vhehn is correct. I never make estimated quarterly tax payments since my annual gains far exceed the interest penalty of 5-8%.

 

[MandelbrotSet]

While not impossible to estimate, knowing your quarterly take beforehand is very difficult at best, and at other times just plain impossible.

So Vehn gets the vote on this one. And as crgarcia says, most traders are net losers (in a fiscal sense of the word) by EOY, so they don't have to worry about it.

Obviously that is not the case with the OP, who has proven that he knows his way around a chart, so good for him.

 

[Free Thinker]

Quote from retaildaytrader:

You should not be admitting that you are purposely avoiding or evading taxes in a public forum especially when there is a reward for those who report you. Whatever the law is, how the irs handles it or your personal situation, its probably best to keep quiet on these matters especially when this website keeps records of ip addresses and such.

People, like Richard Hatch, go to prison for such matters. I would not tell anyone to avoid paying their taxes especially when the IRS is stepping up enforcement.

http://www.wkrg.com/raw_news/articl...eral-tax-sentence/459134/Oct-19-2009_7-43-am/

maybe you should educate yourself before you make noise especially since you dont seem to have a clue. as i said estimated taxes are not mandatory. it is not illegal to chose not to pay them and pay all taxes including the penalty when you file your return.

 

[BondTrader50]

Quote from retaildaytrader:

You should not be admitting that you are purposely avoiding or evading taxes in a public forum especially when there is a reward for those who report you. Whatever the law is, how the irs handles it or your personal situation, its probably best to keep quiet on these matters especially when this website keeps records of ip addresses and such.

People, like Richard Hatch, go to prison for such matters. I would not tell anyone to avoid paying their taxes especially when the IRS is stepping up enforcement.

http://www.wkrg.com/raw_news/articl...eral-tax-sentence/459134/Oct-19-2009_7-43-am/

You"re joking. Right?

 

[LongArm]

Quote from retaildaytrader:

You should not be admitting that you are purposely avoiding or evading taxes in a public forum...

I'm neither avoiding nor evading taxes--I'm choosing to pay them at the end of the year rather than quarterly, which is perfectly legal.

 

[retaildaytrader]

Like I said, I dont know the exact laws in that regard, but I do know there is a difference between unintentionally not paying taxes and an intentional act of not paying taxes. Basically, you are saying that you are purposely choosing to pay your taxes at the end of the year against IRS regulations, but willing to pay the penalty.

Whether the IRS is ok with that or not or if you have consulted with counsel or not, I still would not be admitting to such an act on a public message board especially when it does not cost anyone a dime to report the matter and when a reward is provided to the people who report you.

It would not cost me much to print this out and send it along with a letter of my observations and conclusions to the IRS investigation division in Fresno, CA. Now what you might be doing is legal, but it would take considerable time and expense away from you if they chose to investigate the act. You would have to hire an attorney and it would be a very stressful situation. Therefore, I would never admit to anything like what you just admitted to even if I were confident what I was doing was legal and had the opinion of counsel backing me up.

You can heckle me all you want, but thats what I would do in this situation. I like to keep myself out of situations which might be escalated to hiring an attorney which is very costly and stressful.

Quote from LongArm:

I'm neither avoiding nor evading taxes--I'm choosing to pay them at the end of the year rather than quarterly, which is perfectly legal.