Quote from jonnyz1245:
lets say I have made 50+ round trips in a month of the same two stocks. I trade lots of 1000 shares and each trade is about 100K. I have been scalping and am so far in the green about 15K. Looking at daytrading for dummies today in the chapter on taxes it said "in the extreme case if you move in and out of a stock over and over the irs can tax you on your total gain and not net"
the example they gave was say yopu made 300K in profits and 200K in losses, your net is 100K but they can tax you on the 300K.
what is your experience with this. I am worried now that I have lost on a couple trades...
#'s below are taken from my fidelity tax page and is current
Realized Gain/Realized Loss/Disallowed Loss/
$34,265.30 -$109,274.46 $90,289.62
Net Gain/Loss
$15,280.46
after reading that I am all worried now that I am in over my head. I have traded 4 million in stocks and thought that I would only pay tax on my true net gain but this has me all confused.
will someone with some expertise please help clear this up and clarify for me please. I will stop trading tomorrow if I am getting walloped on gains I have given back.
Thanks
I'm not a licensed tax guy and this isn't advice. This is only how I understand it when it comes to trading:
Most expenses are considered to be hobby expenses unless traded as a business. There are up to 50 expenses that a "business designated" trader can write off... things like data feed to your puter... cable tv.... power supply for puter...
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The more successful an individual is, the higher the tax bracket goes up.
A trader's largest expenses are taxes, whether you LOSE or make money.
A person trading as an individual, (which is classified by the IRS as an INVESTOR) without business designation is subject to the $3000 capital loss rule, meaning, if you lose say, $23,000 you can only write off $3000.
The INVESTOR classification is also subject to wash sales, meaning, if you buy and sell a stock for a loss, you cannot claim that loss if you buy that stock (or derivative) back within 30 days. SO, the wonderful $3000 rule doesn't even kick in until all wash sales are calculated. So you can have $23,000 in wash sale losses and actually end up owing Uncle SCAM.
In addition, as an INVESTOR classification, margin expenses can only be deducted if the trades that require margin make money.
Last writeoffs for INVESTORS are troublesome with the exception of kids, mortgages and charity because the IRS looks at many INVESTOR expenses as hobby expenses. Even with the allowable write offs, the investor is subject to a 2% threshold, meaning, if s/he had say, $100,000 in income, the 1st $2000 cannot be written off... medical expenses have an amazing 7.5% threshold!!
NOW the other plain vanilla designation allowed by Uncle Scam is to be designated as a business entity which includes.......(drum roll please).....
TRADER in SECURITIES election or a formal business structure such as a pass through entity which is an LLC or LP.
Or a C Corp, which in my opinion is the top dog,,,if you have money.
An S Corp shouldn't be considered here because an S corp has to designate 50% income to payroll.
Back in the 19teens the rich learned to use corporations to their advantage to reduce their taxes by increasing financial flexibility.
Trading with a business election allows the trader to write off EVERYTHING from dime one.
C Corp filing allows for extreme flexibility but has some hoops. As in, the first $50,000 is taxed at 15%. Shares in a C corp can be distributed amongst family members whereas they will get taxed on the small portion they own.
Delaware and Nevada are the top two states to inc. or LLC in for privacy benefits. Nevada was best, now it's Delaware...
Now I'm sure I'll see the double taxation argument and others but the bottom line is that EVERYONE is an individual who has their own 'thing' going on which basically equates to, research, and placing yourself within the structure that best suits you.
Disclaimer: I'm not a tax guy and anything you just read by me is a good as craziness if you believe it.
