Is MTM required for Sched C deductions?

[Spearhead]

Hi,

I'm an active trader who fits all the requirements for filing with trading status, but have elected not to use the MTM election. Does this mean I won't be able to take Schedule C deductions?

I've read many conflicting opinions about this and the IRS tax topic is confusing.
https://www.irs.gov/taxtopics/tc429.html

Specifically, it states:
"Traders report their business expenses on Form 1040, Schedule C", without mentioning the MTM election.

It would be much clearer had it said:
"Traders who elect to use the MTM election report their business expenses on Schedule C".

Any advice would be appreciated!
-SH

 

[sprstpd]

Hi,

I'm an active trader who fits all the requirements for filing with trading status, but have elected not to use the MTM election. Does this mean I won't be able to take Schedule C deductions?

I've read many conflicting opinions about this and the IRS tax topic is confusing.
https://www.irs.gov/taxtopics/tc429.html

Specifically, it states:
"Traders report their business expenses on Form 1040, Schedule C", without mentioning the MTM election.

It would be much clearer had it said:
"Traders who elect to use the MTM election report their business expenses on Schedule C".

Any advice would be appreciated!
-SH

I'm not a tax professional, but having trader tax status is a prerequisite for MTM election. But you are not required to elect MTM. Once you have trader tax status you can report business expenses on Schedule C. So you do not need to elect MTM in order to report business expenses on Schedule C.

 

[Spearhead]

I'm not a tax professional, but having trader tax status is a prerequisite for MTM election. But you are not required to elect MTM. Once you have trader tax status you can report business expenses on Schedule C. So you do not need to elect MTM in order to report business expenses on Schedule C.

I figured I could do something like this, but ideally I'd like to move my Schedule D capital gains into Schedule C business profit so that I can actually deduct business expenses against my trading gains. I'm not sure whether this is possible and if so, how to go about it.

 

[jeb9999]

I figured I could do something like this, but ideally I'd like to move my Schedule D capital gains into Schedule C business profit so that I can actually deduct business expenses against my trading gains. I'm not sure whether this is possible and if so, how to go about it.

You would have to be beyond insane to want "to move my Schedule D capital gains into Schedule C business profit"

Schedule D income is privileged income, it is not easy to get and is not subject to FICA tax.

Anyone who is self employed has Schedule C income and is required to pay FICA tax.

What are your legitimate business expenses that you are looking to do this?

If I was making $250K+ a year trading and had $10K a year in trading expenses, Schedule D would be just fine with me.

I sure as heck would not want the $250K+ on Schedule C.

 

[sprstpd]

I figured I could do something like this, but ideally I'd like to move my Schedule D capital gains into Schedule C business profit so that I can actually deduct business expenses against my trading gains. I'm not sure whether this is possible and if so, how to go about it.

Yes, it is possible. Assuming you have achieved trader tax status, figure out your expenses on Schedule C, then transfer enough profits from Schedule D to exactly match the expenses on Schedule C into the other income field. You'll have to make a corresponding entry on the Schedule D. You'll also want to explain what you did and why you did it with supplemental notes. By zeroing out your Schedule C profit, you also avoid paying social security taxes on your "business". And by tax code law, a trader's profits are unearned income so you do not pay social security tax on them. To be sure you are doing it right, I would suggest contacting Green Trader Tax or buying their tax guide.

 

[sprstpd]

You would have to be beyond insane to want "to move my Schedule D capital gains into Schedule C business profit"

Schedule D income is privileged income, it is not easy to get and is not subject to FICA tax.

Anyone who is self employed has Schedule C income and is required to pay FICA tax.

What are your legitimate business expenses that you are looking to do this?

If I was making $250K+ a year trading and had $10K a year in trading expenses, Schedule D would be just fine with me.

I sure as heck would not want the $250K+ on Schedule C.

From:

https://www.irs.gov/taxtopics/tc429.html

Gains and losses from selling securities from being a trader aren't subject to self-employment tax.

 

[Spearhead]

Yes, it is possible. Assuming you have achieved trader tax status, figure out your expenses on Schedule C, then transfer enough profits from Schedule D to exactly match the expenses on Schedule C into the other income field. You'll have to make a corresponding entry on the Schedule D. You'll also want to explain what you did and why you did it with supplemental notes. By zeroing out your Schedule C profit, you also avoid paying social security taxes on your "business". And by tax code law, a trader's profits are unearned income so you do not pay social security tax on them. To be sure you are doing it right, I would suggest contacting Green Trader Tax or buying their tax guide.

Thanks, I purchased the Green Trader Tax guide for this purpose. However, it really comes up short on details.
In general, all it says is:
"In some cases, a good strategy for sole proprietorship business traders is to transfer some business trading gains to Schedule C to zero the income out, but not show a net profit."
It also says to use footnotes.
It seems like if this is a general approach they recommend, they could include more details and provide some boilerplate for the footnotes or even a sample return.

It's not obvious to me how to do the transfer on schedule D without causing an immediate red flag (numbers don't add up, 1099B matching errors, etc).

 

[sprstpd]

Thanks, I purchased the Green Trader Tax guide for this purpose. However, it really comes up short on details.
In general, all it says is:
"In some cases, a good strategy for sole proprietorship business traders is to transfer some business trading gains to Schedule C to zero the income out, but not show a net profit."
It also says to use footnotes.
It seems like if this is a general approach they recommend, they could include more details and provide some boilerplate for the footnotes or even a sample return.

It's not obvious to me how to do the transfer on schedule D without causing an immediate red flag (numbers don't add up, 1099B matching errors, etc).

When I look at my Green Trader tax guide, it did include samples. There is Client EX103 that seems to apply to your situation. Maybe I got the deluxe package or something.