Self employed full time traders

Osorico, as it stands, I understand you're not classified into the self-employment category? does that mean you don't have to pay State and/or City tax, too? As a futures trader, do I have to apply for trader status or do I just leave it as it is and file my taxes with 1099, etc.

Pay my regular capital gains taxes and be done with it?
 
polpolik there's no such thing as applying for "trader status". the irs has not 100% defined what a trader actually is outside it's your main line of income and you substantially trade actively to try to make a living at it. what you "file" is mtm intention with your tax return no later than april 15th of year you wish to do mtm accounting. just because you state your intention to do mtm accounting for that year does not mean you have to actually do mtm status till you actually file the return were you file form 3115 with your tax return and send a copy to irs headquaters in dc. mtm accounting allows one to skirt the $3000 max captital gains loss rule and to not be subject to the wash rule which to me is no big deal if you close out all positions by year end anyway. for instance lets say you're mtm status and you have a 100k loss in 2007. lets say in 2006 you made 150k. if no mtm you only take the 3k loss in 2007 vs taking the whole 100k loss with mtm against your 2006 gain. this is a huge benefit. also one can designate long term accounts with different brokers for the favorable long term capital gains on stocks you want to hold. many husband wife trading accounts use the partnership orsico is talking about.in the old days you could set up accounts in you and your wife's name seperately if you both traded and file seperate sch c's etc. now the irs says you have to file a husband-wife partnership return. there's many accountants that deal with traders taxes. i'd just say most people don't need to set up llc's or sub s's as there's really no tax advantage for most
 
it was my understanding that registering a trading business(sole prop) and claiming you are a full time trader,you can claim all losses,not just 3,000 and do not pay social security. am i correct here?
also,you can write off equipment(computer,phones,websites).
can we write off health insurance?
 
Quote from osorico:

As a futures-only business, I use a de facto partnership....No deductions can be made by the default structure for health insurance, retirement accounts, or any other expense based on SE tax being paid.
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Which default structure? Default as in just filing 6781 straight up as an independent trader?

Are you saying the de facto partnership allows you to make deductions for health insurance and retirement yet avoid SE taxes?
 
Quote from Trader KGB:

Which default structure? Default as in just filing 6781 straight up as an independent trader?

Are you saying the de facto partnership allows you to make deductions for health insurance and retirement yet avoid SE taxes?
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No. The default structure I referred to is the de facto partnership. With no modifications, just a vanilla self/spouse partnership, you can NOT deduct health insurance, retirement etc. The mandatory partnership filing is the 1065.

Osorico
 
Quote from osorico:

No. The default structure I referred to is the de facto partnership. With no modifications, just a vanilla self/spouse partnership, you can NOT deduct health insurance, retirement etc.
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So if there is no deduction benefit to the de facto partnership, why form it?
 
As someone who is Very familiar with Trader Tax laws, let me make it clear that "John12" is correct in his understanding of Self Employment Tax, and "BondTrader50" and "not4kids" are not. ( The IRS publication link posted by "Jorge" is correct in explaining it on page 72. )

Frankly, it is embarrassing to see Traders who do not know this still in this day in age.
 
Quote from polpolik:

Osorico, as it stands, I understand you're not classified into the self-employment category? does that mean you don't have to pay State and/or City tax, too? As a futures trader, do I have to apply for trader status or do I just leave it as it is and file my taxes with 1099, etc.

Pay my regular capital gains taxes and be done with it?
More...

According to the IRS I am self employed. However, the IRS has provided my profession with a different set of rules regarding Federal taxes. State, city, municipal taxes are due based on the tax rules of the particular state, city, municipality, not Federal tax rules.

Now Im not an accountant polpo, but I would say that if you are not deducting your business expenses, then you are paying too much tax. This is in the context of qualifying for "trader status" as far as the IRS is concerned. As mentioned by others, trader status is not applied for. It is either factual or not. Gray = red flag to the IRS. My understanding is they don't particularly care for pseudo or sometime traders trying to claim trader status. (just explanation, not a stab at you or anyone else).

Osorico
 
Quote from Trader KGB:

So if there is no deduction benefit to the de facto partnership, why form it?
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Are you drinking while you watch Tiger putt?
Are health insurance and retirement contributions the only deductions a business gets?

Osorico
 
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