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Filing tax return as Trader Status and Mark to Market Election
- Thread starter Bolimomo
- Start date
Trader status gives you 60/40 AND you do pay SE tax. The expenses are deducted against the short terms cap gains (40). Also, don't forget about the zero percent cap gains rate that runs through 2010. Makes a difference if your sole income is cap gains. The first 68k or so is taxed at zero for married jointly
Most of you are completely misinformed, and frankly I am getting a little tired of explaining this. If you donât even know the very basics of trader taxes I doubt you know enough to remain a professional trader for long.
Self employment taxes are not due on capital gains. Period, end of statement, end of discussion, donât bring it up again.
âTrader statusâ is not some box you check or form you fill out like mark to market. If you file you taxes and put your gains on schedule D and your expenses on schedule C then you are in effect claiming Trader status.
If you are in a situation like a member of an exchange or have an employment situation where the IRS views your capital gains as ordinary income, then you have to pay self employment taxes. Notice the distinction here, SE taxes are due on ordinary income, they are never due on capital gains, so whether you pay SE taxes is not dependent on mark to market or trader status but on how your income is being reported and viewed by the IRS.
If you are just a trader sitting at home trading in a retail account, then you can deduct all your expenses and not pay SE taxes if you meet their trader status guidelines as far as trading enough, consistently enough, have enough at risk, etc. Their guidelines are ambiguous and there is a plethora of information on the web about whether you will pass an audit or not. If you choose mark to market you lose the 60/40 treatment of section 1256 contracts, so you would only want to do that for securities, but it has nothing to do with SE taxes or whether or not you can claim trading expenses.
Self employment taxes are not due on capital gains. Period, end of statement, end of discussion, donât bring it up again.
âTrader statusâ is not some box you check or form you fill out like mark to market. If you file you taxes and put your gains on schedule D and your expenses on schedule C then you are in effect claiming Trader status.
If you are in a situation like a member of an exchange or have an employment situation where the IRS views your capital gains as ordinary income, then you have to pay self employment taxes. Notice the distinction here, SE taxes are due on ordinary income, they are never due on capital gains, so whether you pay SE taxes is not dependent on mark to market or trader status but on how your income is being reported and viewed by the IRS.
If you are just a trader sitting at home trading in a retail account, then you can deduct all your expenses and not pay SE taxes if you meet their trader status guidelines as far as trading enough, consistently enough, have enough at risk, etc. Their guidelines are ambiguous and there is a plethora of information on the web about whether you will pass an audit or not. If you choose mark to market you lose the 60/40 treatment of section 1256 contracts, so you would only want to do that for securities, but it has nothing to do with SE taxes or whether or not you can claim trading expenses.
The best advice is to get an accountant that specializes in traders/brokers. It's worth the money.
Quote from opt789:
Most of you are completely misinformed, and frankly I am getting a little tired of explaining this. If you donât even know the very basics of trader taxes I doubt you know enough to remain a professional trader for long.
Self employment taxes are not due on capital gains. Period, end of statement, end of discussion, donât bring it up again.
âTrader statusâ is not some box you check or form you fill out like mark to market. If you file you taxes and put your gains on schedule D and your expenses on schedule C then you are in effect claiming Trader status.
If you are in a situation like a member of an exchange or have an employment situation where the IRS views your capital gains as ordinary income, then you have to pay self employment taxes. Notice the distinction here, SE taxes are due on ordinary income, they are never due on capital gains, so whether you pay SE taxes is not dependent on mark to market or trader status but on how your income is being reported and viewed by the IRS.
If you are just a trader sitting at home trading in a retail account, then you can deduct all your expenses and not pay SE taxes if you meet their trader status guidelines as far as trading enough, consistently enough, have enough at risk, etc. Their guidelines are ambiguous and there is a plethora of information on the web about whether you will pass an audit or not. If you choose mark to market you lose the 60/40 treatment of section 1256 contracts, so you would only want to do that for securities, but it has nothing to do with SE taxes or whether or not you can claim trading expenses.
Well, not really.
According to TraderStatus.com, if you elect Mark-to-Market Trader Status, then you'll be able to deduct trading expenses while also avoid paying self employment tax. However, the gains are taxed as ordinary income, and therefore taxed at the federal & state levels accordingly.
So, it appears the trick to avoid paying self employment tax is to declare mark-to-market trader status, and be sure to meet the IRS requirements.
btw, as Mark-to-Market Trader Status, you will lose the 60/40 tax treatment. However, as a Non Mark-to-Market Trader Status you'll be able to keep the 60/40 tax treatment, but lose the ability to deduct trading expenses & trading losses from ordinary income. Trading losses as a Non Mark-to-Market Trader Status will be treated as capital loss, and subject to the $3k annual deduction limit from trading losses.
This is what I was able to get from TraderStatus.com...
Now, if only there's a way to avoid treating the gains as ordinary income when you elect the Mark-to-Market Trader Status...
So, it appears the trick to avoid paying self employment tax is to declare mark-to-market trader status, and be sure to meet the IRS requirements.
btw, as Mark-to-Market Trader Status, you will lose the 60/40 tax treatment. However, as a Non Mark-to-Market Trader Status you'll be able to keep the 60/40 tax treatment, but lose the ability to deduct trading expenses & trading losses from ordinary income. Trading losses as a Non Mark-to-Market Trader Status will be treated as capital loss, and subject to the $3k annual deduction limit from trading losses.
This is what I was able to get from TraderStatus.com...
Now, if only there's a way to avoid treating the gains as ordinary income when you elect the Mark-to-Market Trader Status...
You are an idiot, really.Quote from BondTrader50:
Well, not really.
Trader status has nothing to do with 60/40 or not, it has to do with section 1256.
SE tax is a separate issue.
Your post was wrong.
All the information is on the web, and your tax software will confirm it. If you were a pro trader you would have already done this for past years, maybe you should stop giving advice you know nothing about.
thanks for the advice Opt789...
In the spirit of full disclosure, I also came across a blog that confirmed your assertion that one can elect a Non Mark-to-Market Trader Status, which will give you the ability to write-off expenses on the schedule C and report gains on the schedule D; therefore, you would avoid paying the self employment tax, while still benefiting from the 60/40 rule... Is this correct???
In the spirit of full disclosure, I also came across a blog that confirmed your assertion that one can elect a Non Mark-to-Market Trader Status, which will give you the ability to write-off expenses on the schedule C and report gains on the schedule D; therefore, you would avoid paying the self employment tax, while still benefiting from the 60/40 rule... Is this correct???
Quote from opt789:
You are an idiot, really.
Trader status has nothing to do with 60/40 or not, it has to do with section 1256.
SE tax is a separate issue.
Your post was wrong.
All the information is on the web, and you tax software will confirm it. If you were a pro trader you would have already done this for past years, maybe you should stop giving advide you know nothing about.
Whatever jagoff!
Jones, PM me and I'll give you my accountants contact info if you're interested. He's based in Chicago but he has clients across the country. I've been through 3 full audits that all went smoothly.
Yes.Quote from jones247:
thanks for the advice Opt789...
In the spirit of full disclosure, I also came across a blog that confirmed your assertion that one can elect a Non Mark-to-Market Trader Status, which will give you the ability to write-off expenses on the schedule C and report gains on the schedule D; therefore, you would avoid paying the self employment tax, while still benefiting from the 60/40 rule... Is this correct???
Let me see if I can simplify a little.
If you have a complex situation, like being the member of a prop firm, have another job, trade for a living but maybe not trade enough, have complex mark to market issues like claiming to recoup past losses etc. then you have to get qualified professional help.
But there are some basics that donât change:
SE taxes are on due on ordinary income, not capital gains. An independent, retail trader earns capital gains.
Everyone gets 60/40 for section 1256 contracts regardless of trader statues or deducting expenses, unless they choose mark to market for those contracts.
If you satisfy the IRS guidelines for trader status then you can claim all legitimate expenses as a simple tax filer or you can form a company for your trading.
So a profitable, retail futures trader would never choose mark to market, would get 60/40 treatment and would not have to pay SE taxes. Additionally they can take all legitimate expense deductions provided they meet the IRS guidelines for Traders.