Looking for tax deductions?
- When you tally up your results each year – do you see the capital gain tax taking away too much from your hard won trading profits?
- As an active trader do you find that you have too little time at the end of the day to do the necessary tax planning to avoid paying excessive income taxes?
- What is the real story behind all the talk about the tax benefits from choosing trader status and electing mark to market?
2018 changes to carried interest: The underlying assets must be held for three years “with respect to certain partnership interests.” This change would result in hedge funds players paying more in taxes on gains since they trade assets more frequently. Private equity – angel investors, who hold their assets over a longer term, would be exempt.
2018 changes regarding traders in financial instruments and other self-employed occupations: An effectively lower ordinary tax rate may be available for trading as a §199A “specified service activity” for those using a pass-thru entity, but perhaps not for sole-proprietor traders. A specified service activity means any trade or business activity involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners, or investing, investment management, trading, or dealing in securities, partnership interests, or commodities (but perhaps not any other financial instruments).
2018 changes to increase the §199A deduction: A higher “capital percentage” may be beneficial for certain trades or businesses. Therefore, it may be beneficial to purchase equipment, rather than lease it.
2018 changes with meals: The 50% deduction for business meals may no be deductible any longer (to be determined) and the 100% §119 deduction is now only 50% deducible.
2018 changes with IRAs: Recharacterizations between traditional and Roth IRAs, including reversal a Roth conversion, are not allowed after 12/31/17.
2018 changes for gamblers: Any deduction for gambler operating expenses and wagers made will now be limited to the amount of gambler winnings (including the W-2G or 1099 income).
2018 changes for NOLs: Net Operating Losses (NOL) may not be carried back and 20% of your other net taxable income cannot be offset by an NOL.
2019 changes with divorce: Alimony deduction is disallowed for those occurring after 12/31/18. Earlier divorces may be modified to have this same rule.
Here at TraderStatus.com™ we will bring together in one place the information necessary to help you survive unnecessarily high short-term capital gain taxes, self-employment taxes, Affordable Care (Obamacare) taxes, and state and federal income taxes. To accomplish this often a separate trading entity is the answer, but just as often we avoid it as not being cost effective in a particular situation.
Many traders do not yet even realize that they are paying far too much to the Federal Government. Existing, proven and legal procedures, which in many cases can significantly reduce taxes each and every year, are available to anyone qualified to choose to use them and to timely elect to use them.
As we all eventually learn, those low capital gain tax rates of 20% or lower are not available for the daytrader’s lightning fast trading profits. Rather, an individual daytrader’s gains (or losses) are subject to the higher ordinary income tax rates!
Investors and securities traders may incur substantial costs with online fees, commissions, real-time data-feeds, computer equipment and so on. The Internal Revenue Service, on their own, do not treat most taxpayers very fairly when it comes to deducting these expenses. Leaving it up to the IRS publications and instructions, at best, a taxpayer must first qualify to itemize his deductions on Schedule A – making those deductions subject to a 2% of Adjusted Gross Income (AGI) reduction and for high-income taxpayers even some additional limitations.
Whether you call it trader tax status or day trading or you just want to find out more about being a day trader, please take the time to read and understand the information found on our web site as it can be very helpful to you when preparing your taxes and when planning your tax strategies. Every month we hear from taxpayers who found this web site too late or after they already paid someone for a download that contained nothing more than the basic generic one-size-fits-all information. Taxpayers who were ill-advised by normally very competent CPAs and other tax practitioners, but for whom the tricks and traps of Trader Status were unknown to them or misapplied by them.
There are many excellent income tax advisers out there. And a good CPA does not need to know everything. He or she only needs to know how to look up the specific tax issues. And even more importantly – knowing when there is an issue or potential issue and that needs some attention.
Unfortunately the hard facts are that, when it comes to traders in financial instruments or commodities, many tax advisors still have no clue when there is a Trader Status issue to look up, let alone having the practical hands-on experience necessary to be aware of the hidden tricks and traps out there!
Odds of being audited:
Individuals, Form 1040 –
- 1:9.5 if the taxpayer is earning over $1MM (updated for 2015)
- 1:25 are the odds for individuals earning greater than $200,000.
- 1:100 for people earning less than $200,000.
- 1.6MM tax returns are audited annually, out of 150MM Form 1040 returns being filed.
- 8 out of every 10 audits result in additional taxes being assessed.
- Are you in the top 1%? An AGI over approximately $428,713 puts you there!
The top 1% reported 19% of the country’s AGI, and they paid 37.8% of all federal income tax.
- Are you in the top 5%? An AGI over approximately $179,760 puts you there!
The top 5% reported 34.4% of the country’s AGI, and they paid 58.6% of all federal income tax.
- Are you in the top 10%? An AGI over approximately $127,695 puts you there!
The top 10% reported 45.9% of the country’s AGI, and they paid 69.8% of all federal income tax.
Entities filing Forms 1120 or 1120S or 1065 –
|“No-change” rate for audits of Form 1120S 35%
“No-change” rate for audits of Form 1065 49%
“No-change” rate for audits of large 1040 41%
Help is out there for those qualifying taxpayers whom are active enough to file with the IRS as a TraderStatus™Taxpayer. Under Trader Status an electing daytrader may deduct all of his ordinary and necessary expenses. Taxpayers filing with Trader Status do not itemize those expenses on Schedule A (but yes, they may itemize other expenses and may even take the “standard deduction” in addition to all of their “trader status” expense deductions). Since a trader does not “itemize” daytrading expenses these are not subject to the 2% limitation, the 3% limitation, or many of several other restrictions the IRS places on the average investor!
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