Suggestions to cut down on Short Term Capital Gains Taxes for Day Trader in USA

DaveV said:
Move to Puerto Rico for 6 months a year. Zero taxes (Federal and Local) on capital gains. Google Puerto Rico Act 60
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https://relocatepuertorico.com/irs-residency-requirements-for-puerto-rico/
How to Pass the Presence Test
The first of the three tests is perhaps the most complicated. While it is meant to test your residency in Puerto Rico, the key concern of the IRS is that you are not spending a lot of time in the US. Therefore, there are multiple ways to satisfy the requirements of the presence test. Only one of the following conditions must be true:

  • You were present in Puerto Rico for at least 183 days in the tax year.
  • You were present in Puerto Rico for at least 549 days in the three-year period of the current tax year and the two previous tax years and were in Puerto Rico for at least 60 days in each tax year during that period.
  • You were not present in the US for more than 90 days during the tax year.
  • You did not have more than $3,000 in earned income (defined as pay for personal services performed, such as wages, salaries, or professional fees) in the US during the tax year and were present in Puerto Rico for more days than in the US.
  • You had no significant connection to the US during the tax year.
Do you even need to live in PR at all if you spend less than 90 days/year on the mainland? So you can go travel the world, spend less than 90 days in the USA, and not spend time in PR?
 
kmgilroy89 said:
Do you even need to live in PR at all if you spend less than 90 days/year on the mainland? So you can go travel the world, spend less than 90 days in the USA, and not spend time in PR?
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Yes you do. Remember that there are two entities that you must satisfy. The first is the IRS so that they will not come back at you (they have up to 3 years) and claim that you were not really a PR resident, so owe back taxes and penalties.

Next you have to satisfy PR that you were really a PR resident. PR has local taxes in lieu of IRS payments. They are eliminating capital gains taxes because they want to attract high income earners to PR, who will spend money while not taking any local jobs. If you are not going to be in PR, then why should they let you use them to avoid IRS taxes.

Basically most of the rest of the linked article is correct. It is a rolling 6-month average over 3 years. But it did not mention 3 ways around the 6-month requirement:
a) You can spend up to 30 days outside PR but it counts as being in PR, if those 30 days are not spent in the USA.
b) You can travel to the USA for up to 30 days for educational or medical emergencies.
c) If a state of emergency is declared in PR, such as after a hurricane, you can travel up to 14 days outside PR.

The most important requirement: You can never be in the USA for more days than PR in any year.
 
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DaveV said:
Yes you do. Remember that there are two entities that you must satisfy. The first is the IRS so that they will not come back at you (they have up to 3 years) and claim that you were not really a PR resident, so owe back taxes and penalties.

Next you have to satisfy PR that you were really a PR resident. PR has local taxes in lieu of IRS payments. They are eliminating capital gains taxes because they want to attract high income earners to PR, who will spend money while not taking any local jobs. If you are not going to be in PR, then why should they let you use them to avoid IRS taxes.

Basically most of the rest of the linked article is correct. It is a rolling 6-month average over 3 years. But it did not mention 3 ways around the 6-month requirement:
a) You can spend up to 30 days outside PR but it counts as being in PR, if those 30 days are not spent in the USA.
b) You can travel to the USA for up to 30 days for educational or medical emergencies.
c) If a state of emergency is declared in PR, such as after a hurricane, you can travel up to 14 days outside PR.

The most important requirement: You can never be in the USA for more days than PR in any year.
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Ah…from this article I got you could do something like:
PR: 95 days
USA: 90 days
Asia: 90 days
Europe: 90 days
Then you set up your trading business, office, permanent residence, bank account, license, voter registration, etc in PR. Buy your sole property in PR. If you have a wife/kids move them to PR. Keep no tax home/property elsewhere. The other locations just stay with friends/hotels/AIRBNB. Now this would give you a closest connection to PR than the USA and every other home.
 
But doesn't PR distinguish between capital gains tax only on long term investors and normal income tax on active traders based on holding period, volume, frequency etc.
 
kmgilroy89 said:
Ah…from this article I got you could do something like:
PR: 95 days
USA: 90 days
Asia: 90 days
Europe: 90 days
..
Now this would give you a closest connection to PR than the USA and every other home.
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I believe you would be playing with fire. Remember, the source of the article, relocatepuertorico.com, is not an official PR agency. There are a service that for a fee, assists investors in moving to PR. If the IRS or PR come to you after a couple years and says you were not really a PR resident, so owe back taxes, the burden will be on you not relocatepuertorico.com

If you don't spend sufficient number of days of the year in a specific state/territory, the IRS could label you as itinerant person with no real tax home, so you still owe them taxes.
 
These ideas were what I was hoping for, none of this was mentioned anywhere I looked so far. Is it possible to combine my trading with another business (YouTube channel, industrial equipment repair, manufacturing or some other business) where I can use some of those expenses (equipment, materials, etc...) as something to offset my gains? Can I use office improvements to offset my gains?
 
Lego said:
Is it possible to combine my trading with another business (YouTube channel, industrial equipment repair, manufacturing or some other business) where I can use some of those expenses (equipment, materials, etc...) as something to offset my gains? Can I use office improvements to offset my gains?
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Open a Corp and do whatever activity you want including trading.
 
If you are looking for a tax optimization solution that doesn't involve you moving somewhere like some of the suggestions above, look into qualifying for a TTS(short form for Trader Tax Status) it's a bit difficult to qualify for as you have to show that you are dedicating substantial time and effort to day trading and have made traders on almost all trading days that the market was open.
Some of the benefits of the TTS include that you'd be able to deduct expenses that you incur for trading successfully from your taxable income like internet and office costs etc.
Thanks
 
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Here was my problem 5 years ago...

https://www.elitetrader.com/et/thre...n-order-to-make-over-20-000-obamacare.320458/

You don't need to read the whole thread, but was trying to do a similar thing.

I have been thinking about that situation over they years...What could I have done?? People had mentioned Tesla options, but I didn't like that idea.

This is the idea that I like, and probably would have done it back then.

Find two or three bio tech companies...All that are either in second or third phase trials, with block buster drugs. Either buy the stocks or do options on them.

When the results come out, you will either have huge winners or major losses.

If you look at Yahoo! Finance, you will see the largest percent winners and losers for the day. They are almost always bio tech.

Either take the short term losses (against the gains), or reap the profit from the gain...Smiling as you pay the taxes to the IRS.

Insane or thinking outside the box...
 
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