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 A few years ago there were approximately five million people
who were registered to trade stocks on-line1. In April 2000 about 50,000 were day traders3 These numbers are projected to increase
four-fold to more than twenty million households2 and many of them need to make the choice to file
there taxes as an investor
or to file using trader status.
There is no reason why you, as a
qualifying active trader, can not file as a trader status
taxpayer on your own using readily available tax
preparation software. All it takes is your time and a
good, thorough understanding of the methods used to file
properly as a trader status taxpayer.
How thorough? Find out now, by taking this
quiz, if you
need
an accountant and this
summary on
hiring a tax pro to
prepare your taxes or not! While trader status concepts are more
complex than anything in the quiz... If you do score well, you
probably have what it takes to do just fine if preparing your own trader status tax return!
Otherwise, please consider using TraderStatus.com
Become your own expert on Trader Status tax filings - order the
TradersTaxPlan™ documentation, instructions and forms...
Click here for Schedule D / Form 4797
software.
File your 2002 federal and state income tax returns at
DoYourOwnDaytraderTaxes. Both your federal and your home state income tax
return can be electronically filed for one reasonable price.
(e-filing is not recommended for many returns claiming significant
daytrading activity. We recommend that you print the return out, attach
the details of
your trades and send via certified mail).
Expert
help and advice will be available to you as needed once you start
working on your trader status "Schedule C." The normal
$49.95 price includes basic email support.
The
DoingYourOwnTaxes.com site offers the same basic quality tax
preparation for $24.95 without the added
help for daytrader assistance.
At anytime
during the process of entering your data in either of our online
services you may consider upgrading to become a
full-service
client and we can take over your tax file from where you left
off, completing the tax filings and signing the original tax returns as your
CPA preparer.
As a securities daytrader you put your expenses on "Schedule C" and a
listing of your trades on Schedule D (if a valid Mark-to-Market election was
made by April 16, 2002 then use form 4797 instead of Schedule D). Answers to many general questions may be obtained via the
site's FAQ listing.
Answers to general common daytrader questions may be obtained via email
once you start your "Schedule C." More detailed information is
available by purchasing our
2002/2003 TradersTaxPlan™ documentation, instructions and forms...
($200)
EXTENSIONS for filing form 1040 can be obtained by calling
(888) 796-1074 between April 1, 2003 and April 15, 2003. Have a
rough draft of a filled in
extension
form 4868 and your 2001 form 1040 when you call this telephone
number. Do not use this method if you are planning on electing
M2M for 2003, which requires attaching the election statement to form
4868 and mailing both to the I.R.S. You
may not elect M2M using the telephone method.
Where to file your IRS extension request, form 1040 & estimated taxes:
http://www.irs.gov/file/content/0,,id=105693,00.html
Where to file your business IRS tax returns:
http://www.irs.gov/file/content/0,,id=105081,00.html
These are some of the automated "Trade Matching" or "Schedule D" programs available from
other web sites
(some of these may also offer free demo or lower priced versions for a
restricted number of transactions):
Many on-line
investors and on-line traders filing as trader status are
doing their own tax returns right now. Taxpayers who
qualify as a trader for tax purposes, using annually
updated software, can save hundreds and even thousands in
professional tax preparation fees each year.
When a taxpayer is audited by the IRS, CPAs generally bill additional
on an hourly basis. Having done your own return and representing
yourself in front of an IRS auditor can sometimes be imposing, but if
you are well prepared it can save you these professional fees as well.
Optionally taxpayer who prepare their own tax returns can retain a CPA
firm to represent them if the IRS auditor comes to them with
questions. For most taxpayers this is the best way to go...
before replying to an IRS letter or make any contact with the IRS. Fill in
(form
2848
form
2848 ) as best you can and get it to your tax
advisor/representative rather than communicating with the IRS directly.
 Audit
Protection Insurance will cover some or all of the costs of
CPA representation for your 2002 form 1040 using myself,
or most any CPA of your choosing. This new coverage may even
insure you against the taxes assessed and the interest
charged as a result of the audit,
and that's even if the errors were admittedly due to your own mistakes!
We hope that you
find using the information found on this site and our
email and newsletter to be an invaluable
starting point. Of course this information is only for
discussion purposes and some of the positions discussed
are sophisticated and/or aggressive. Other positions are
basic and conservative. As such, taxpayers may utilize
the information contained therein only at their own risk.
Even though thousands of traders file on their own, we
must make this statement: "All taxpayers are advised
that they should not rely on the information found on
this site and our email and newsletters, but should
retain the guidance of appropriate competent
counsel familiar with their own unique situations."
Beware of the "wash
sale" rule and generally of all the
questionable
tax advice found on the internet - such as the examples in our: Tax-
advice Hall of Shame
Make sure to sign up for our
free email newsletter to keep yourself informed of trader
status issues.
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1 Testimony of Arthur Levitt , Chairman of the U.S.
Securities and Exchange Commission Before the Senate
Permanent Subcommittee on Investigations Committee on
Governmental Affairs, Concerning Day Trading September
16, 1999 "Technological advances have also
fostered the development of a new kind of broker-dealer.
These firms promote day trading, which discards many
established investing principles, such as choosing
securities to buy and sell based upon company
fundamentals and performance. This new trading
phenomenon, while well-publicized, is relatively limited
in its reach, with the number of day traders estimated to
be less than 7,000. By comparison, there are close to 80
million individuals that own stock and more than 5
million investors using the Internet for brokerage
services."
2 A study by Jupiter Communications sees the
online brokerage sector increasing assets seven fold from $415 billion
at the end of 1998 to more than $3 trillion by the end of 2003.
Online trading households are expected to grow from 4.3 million in
1998 to more than 20.3 million in 2003. They expect 41% of US
households holding stocks to have online trading accounts in
2003. Gomez Advisors and Harris Interactive project that 2.85
million investors with offline brokerage accounts are
"likely" or "extremely likely" to open an online
brokerage account in the next six months.
3 Bear, Stearns & Co, analyst Amy S. Butte
quoting from a newly completed report entitled "Day Trading and
Beyond: A New Niche is Emerging." This report says that
each day 75% of the online trading volume is done by day traders or
so-called "semiprofessionals."
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