IRS Trader Status

chartman said:
Where? Is this an IRS ruling or a court decision?
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It's a court ruling....

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/

http://www.forbes.com/sites/greatsp...-find-mixed-in-poppe-tax-ruling/#68c4912c7125
 
When I traded equities & ETFs full time for a living for about 5 years my tax guy, that is a CPA, a former IRS examiner, and had many clients that traded for a living for over 10 years. This is what I learned from him:

* Don't file with 'trader status' This would flag you for an audit at some point. Even if you think you are following all the rules there were so many gray areas - and the IRS would probably win. It would be expensive in legal representation & time consuming.

* Always file and pay your estimated quarterly taxes on time to avoid penalties and interest or possibly even a lien. I suspect some new day traders are not aware of this.

Disclaimer: I am not a tax expert. You will have to do your own DD. Many CPA's are ignorant on traders taxes - make sure you find one that has extensive expertise with active traders - I think former IRS insiders are the best - IMHO.
 
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All trader status ever did for me was to allow me to write off all expenses associated with trading, even my office space in my home, telephone, tv, computer, software, all on a percentage basis of business/personal. I was counting every last penny. My income was still all cap gains with some interest and dividends, no entity or anything unusual. As account grew trading expenses stabilized and became insignificant and ever since I have just filed as unemployed and now retired.

If mtm is the big issue, I would say an even bigger issue is mental trading psychology and a shrink would be better than an accountant.
 
comagnum said:
* Don't file with 'trader status' This would flag you for an audit at some point. Even if you think you are following all the rules there were so many gray areas - and the IRS would probably win. It would be expensive in legal representation & time consuming.
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This is just terrible advice if you are trading securities actively and have high expenses. You'll be losing out on thousands of dollars per year.
 
prc117f said:
LOL With taxes the only way is to pay a professional to make sure it is 100% Kosher. The one thing you do not try to guess or cheat is the IRS.
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Or you can take the time to understand the relevant tax code and not have to deal with so-called "professionals" who are sometimes worse than nothing at all.
 
dealmaker said:
o qualify for trader status you need 720 trades per year and the trades have to be 30 days or shorter.
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I don't see that in the tax code. https://www.irs.gov/taxtopics/tc429.html. To claim MTM, you must qualify under this definition of a trader.
Traders

Special rules apply if you are a trader in securities, in the business of buying and selling securities for your own account. The law considers this to be a business, even though a trader does not maintain an inventory and does not have customers. To be engaged in business as a trader in securities, you must meet all of the following conditions:

  • You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation;
  • Your activity must be substantial; and
  • You must carry on the activity with continuity and regularity.


The following facts and circumstances should be considered in determining if your activity is a securities trading business:

  • Typical holding periods for securities bought and sold;
  • The frequency and dollar amount of your trades during the year;
  • The extent to which you pursue the activity to produce income for a livelihood; and
  • The amount of time you devote to the activity.


If the nature of your trading activities does not qualify as a business, you are considered an investor and not a trader. It does not matter whether you call yourself a trader or a day trader, you are an investor. A taxpayer may be a trader in some securities and may hold other securities for investment. The special rules for traders do not apply to those securities held for investment. A trader must keep detailed records to distinguish the securities held for investment from the securities in the trading business. The securities held for investment must be identified as such in the trader's records on the day he or she acquires them (for example, by holding them in a separate brokerage account).
 
Comagnum
Don't file with 'trader status' This would flag you for an audit at some point.
sprstpd
This is just terrible advice if you are trading securities actively and have high expenses. You'll be losing out on thousands of dollars per year.
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What is not to wise is not consulting a tax professional and following their advice. Like I said he was a former IRS auditer - of course I am following his advice. He explained exactly what they will look for in audit for traders operating out of their house, especially if reporting loses - few, if any, would measure up to qualifications. He suggested I rent an office space if I wanted to take a write off and not get flagged. Its a personal choice of risk to reward, I am not willing to take that risk to save a meager amount of $. This is just one persons opinion - do your own DD - not saying I am right - just adding another perspective.
 
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typo:
What is not to wise is not consulting a tax professional and following their advice.
Corrected:
What is not to wise is consulting a tax professional and than not following their advice.
 
comagnum said:
typo:
What is not to wise is not consulting a tax professional and following their advice.
Corrected:
What is not to wise is consulting a tax professional and than not following their advice.
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The problem is that this area of the tax code is so specialized that probably 10% of professionals understand the nuances.
 
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