What's a K2? Do you mean K-1??? Let me guess....assuming there is any profit to be had you take a tiny W2 salary and pass the rest of equity "distributions". Am I right?
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IRS Trader Status
- Thread starter chartman
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What's a K2? Do you mean K-1??? Let me guess....assuming there is any profit to be had you take a tiny W2 salary and pass the rest of equity "distributions". Am I right?
What's a K2? Do you mean K-1??? Let me guess....assuming there is any profit to be had you take a tiny W2 salary and pass the rest of equity "distributions". Am I right?
My typo, K1 is correct.
You are correct except there are rules and laws that require "competitive" wages, or have the entity disregarded, losing all tax benefits. My wages are not tiny or even small. The employer pays SE tax, as do I though payroll deduction. Distributions, bonuses, and certain employer paid or provided benefits and reimbursements are also allowed.
well let's try this, all things being the same, will trader status alone give me earned income? Never heard that one before, but it's been a while since I looked.
No. Although, a Schedule-C trader COULD then use the techniques and footnotes as implemented by Green to convert business income (ie cap gains) into earned income. Green has been doing that successfully for years with clients, where appropriate. I did it about 15 years ago with no probs.
I understand the deductions of expenses. You have misunderstood my posting. I was concerned about whether one normally would have sufficient expenses to justify filing for trader status above and beyond what one normally could deduct. Of course, that would depend on each individual and his amount of expenses.
Trading status has everything to do with the amount of trading one does. You have to be an 'active' trader in order to qualify and maintain trader status with the IRS. I could see where one could easily overtrade in order to meet the IRS guidelines for trader status.
Yes, I know all positions are considered to be closed within the current tax year and new cost basis established. That was the reason for how would this might affect one's trading strategy.
Trading status has everything to do with the amount of trading one does. You have to be an 'active' trader in order to qualify and maintain trader status with the IRS. I could see where one could easily overtrade in order to meet the IRS guidelines for trader status.
Yes, I know all positions are considered to be closed within the current tax year and new cost basis established. That was the reason for how would this might affect one's trading strategy.
There is no specified number of trades required or a holding period.
GreenTraderTax coined the term “trader tax status” (TTS) in the late 1990′s, and we’ve focused on trader tax benefits ever since. By default, the IRS considers traders to have “investor tax status” with restricted Section 212 investment expense treatment, capital loss and wash sale loss limitations, and no opportunity for employee benefit plan deductions.
TTS is the linchpin for using Section 162 business expense treatment, making a timely Section 475 election for exemption from capital loss limitations and wash sale loss adjustments and unlocking employee benefit plan deductions including health insurance and retirement with an S-Corp.
The IRS recognizes TTS, but it does not provide a bright line test for qualification. That’s where we come in with “Green’s Golden Rules For TTS Qualification” based on our extensive analysis of trader tax court cases and dozens of years of experience preparing tax returns for traders around the country.
There are three factors that don’t qualify for trader tax status: (explained in more detail in the guide)
- Automated trading without much involvement by the trader
- Engaging a professional outside investment manager.
- Trading in retirement funds.
I am not affiliated in any way with GreenTraderTax company or products. I have however, had consultation in the past, as a paying client.
correct...it's determined on a case by case basis.There is no specified number of trades required or a holding period.
1) "Trader Status" does not affect your trading. It's the other way around. Your trading determines (in the eyes of the IRS, and only if you and/or your entity elect the status) whether or not you are qualified for trader status. Trader status is not the same as MTM. They are 2 different and separate taxpayer ELECTIONS. Entities, not only individuals, are taxpayers.
2) Trader status has 4 primary benefits IMO.
a) Wash sale rules do not apply to equities and derivatives treated/taxed as equities.
b) Full range of business deductions, credits, and expenses.
c) Trading losses are not subject to only $3000 annually.
d) Trading by IRS definition is un-earned income. Without trader status, earned income is not possible. Therefore, without trader status and only 1099 income, retirement accounts can not be funded, health insurance and other types of benefit costs are out-of-pocket, and life in general is a pain in the ass.
https://greentradertax.com/shop-guides/greens-trader-tax-guide/
Be sure to poke around the site and read some posts.
"d" is incorrect. Trader tax status has nothing to do with whether you can fund an IRA. Forming an entity does.
There are three factors that don’t qualify for trader tax status: (explained in more detail in the guide)
- Automated trading without much involvement by the trader
- Engaging a professional outside investment manager.
- Trading in retirement funds.