Is IRS trader status permanent?

[sprstpd]

Just like any other taxpayer, a trading entity can have TTS status if qualified. However, an entity IS NOT necessary for earned income.

An individual with TTS can use Schedule C with several explanatory and specific footnotes to generate earned income. GreenTraderTax developed the method many years ago with much success. An entity is streamlined and clearer to the IRS.

Are you sure about this?

From:

https://greentradertax.com/business-traders-maximize-tax-benefits-with-an-s-corp/

Plus, a sole proprietor cannot pay himself a salary or fee to generate self-employment income (SEI) or earned income, which is required for AGI deductions including health insurance and retirement plans.

Traders need an entity to financially engineer earned income for health and retirement plan deductions.

 

[tiddlywinks]

100% certainty. Not only 15 or so years ago, but today as well.
NOTE: An entity is PREFERRED due to the straight forwardness.
Schedule C has been an IRS target for as along as I remember, but there is a big difference between tax avoidance vs under reporting. Just saying. Would I go the schedule C route today, no. The benefits, clarity, and separateness of using an entity is too strong.

Here is a blurb from Green's 2013 Trader Tax Guide, pg 39, the last time I purchased his book.

 

[sprstpd]

100% certainty. Not only 15 or so years ago, but today as well.
NOTE: An entity is PREFERRED due to the straight forwardness.
Schedule C has been an IRS target for as along as I remember, but there is a big difference between tax avoidance vs under reporting. Just saying. Would I go the schedule C route today, no. The benefits, clarity, and separateness of using an entity is too strong.

Here is a blurb from Green's 2013 Trader Tax Guide, pg 39, the last time I purchased his book.

View attachment 172606

Nowhere in that text does it say that you are unlocking earned income by using the Schedule C strategy. Even though you report the income on Schedule C, it is still considered unearned income.

 

[tiddlywinks]

You don't know what earned income is, do you?

This should help
https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/earned-income

Note that "net earnings from self employment if you own or operate a business or a farm" is earned income.

The Schedule-C strategy example description cited does not create net earnings. Depending on your own numbers, circumstances, and desired level of tax advantages, the strategy can show net earnings(read profit), SE taxable, and considered earned income.

Further clarification or questions should be directed to your tax professional who hopefully has a solid understanding of business trader taxation rules and strategies.

 

[java]

So if you want to put 5k in a roth you could just be a sole proprietor with 5k plus se tax sched C profit and you'd be cool. And the rest would just go on sched D. You can take it to the bank, this is the internet and I am not bound by any regulatory agency or even common decency.

 

[Zzzz1]

Does this thread not tell you everything you need to know why tax codes need to be completely scrapped and simplified? It's laughable that a normal person can't do their own taxes and that even IRS specialists need to consult lawyers and precedence law to interpret certain situations. Where I live the entire tax declaration, whether self employed or salaried is done on 4 pages. Whether income, mortgage deductibles, capital gains, deductibles for spouses or children, special company perks. 4 pages, 1-2 hours, done. Why are we all sitting around and eat this shit all those parasite middle men and associated industries are feeding us?

 

[tiddlywinks]

So if you want to put 5k in a roth you could just be a sole proprietor with 5k plus se tax sched C profit and you'd be cool. And the rest would just go on sched D. You can take it to the bank, this is the internet and I am not bound by any regulatory agency or even common decency.

If...

• you qualify for TTS
• you make timely, appropriate and necessary tax treatment elections
• you have the numbers to support your tax plan
• you file an accurate tax return with necessary and needed footnotes, and any taxes due

Yeah, your tax plan can be achieved.

 

[wrbtrader]

Tax rules should be simplified but the fact is that its not easy for "some folks" or too complicated for whatever reasons. Those that its not easy to determine what the rules are or what they should do...

Ask the IRS (make an appointment...people still do stuff like that) or hire a professional tax accountant and for those living a very complicated lifestyle...get a tax professional you trust that also has power of attorney that handles all legal issues involving your taxes (e.g. audit).

Never ask for tax advice on social media (like a trader forum). Anonymo

 

[sprstpd]

You don't know what earned income is, do you?

This should help
https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/earned-income

Note that "net earnings from self employment if you own or operate a business or a farm" is earned income.

The Schedule-C strategy example description cited does not create net earnings. Depending on your own numbers, circumstances, and desired level of tax advantages, the strategy can show net earnings(read profit), SE taxable, and considered earned income.

Further clarification or questions should be directed to your tax professional who hopefully has a solid understanding of business trader taxation rules and strategies.

You are incorrect.

Did you even read the Green Trader Tax link in my previous post? Here is another website on the same topic:

http://tradertaxcoach.net/Sole_Proprietorship_2.php

Sole proprietor traders DO NOT pay Social Security and Medicare taxes on their trading gains. Most sole proprietors must pay self employment taxes on earned income by preparing Schedule SE, the Self Employment Tax return, which gets filed along with the Schedule C and Federal 1040 income tax return each year. However, since trading gains are classified as unearned income, traders do not file Schedule SE.

This brings up an important point about sole proprietor traders: the ability to generate earned income. Since trading gains are classified as unearned income, sole proprietor traders run into a problem if they want to deduct healthcare expenses or contribute to a retirement plan. You need earned income in order to do these things.

If you happen to be married, earned income can be created by paying a spouse to work for you in your trading business. This opens up healthcare deductions and retirement plan contributions. However, sole proprietor traders who are single do not have this option. If you fall into this category, you need to establish a single member LLC or S-corp and pay yourself a salary to generate earned income.

In summary, even though you are reporting numbers on Schedule C, it doesn't make that income earned income (if you are a trader).

 

[tiddlywinks]

You are incorrect.

Did you even read the Green Trader Tax link in my previous post? Here is another website on the same topic:

http://tradertaxcoach.net/Sole_Proprietorship_2.php



In summary, even though you are reporting numbers on Schedule C, it doesn't make that income earned income (if you are a trader).

Yeah, the IRS document I linked is incorrect. O.K.
Typical ET. Everyone is always wrong, unless I think otherwise.

If you actually trade (with or without TTS), I wish you well.