Depends entirely upon what your adjusted gross income (AGI) (aka your tax bracket) is for the year. If you make $1 million then no you'll probably pay more. If that is your only income then you may not own any tax at all.
I'm wondering how many traders here have or are seeking 'trader tax status' and how the requirements for acquiring that status have effected (affected?) their trading.
The reason I bring this up is that it seems to me some of the things you have to do to qualify for trader tax status, or trading as a business, are actually counter productive to running a successful (profitable) trading business. One example is the 'requirement' for a minimum number of trades per year. This encourages over trading, especially if you're not a scalper who takes several round turns a day. Swing traders may be out of luck, both on the number of trades criteria and the duration of the trade criteria.
I know that each case is different, but I'd like to get a feeling of how many traders have found the requirements worth it for the business deductions and have been able to trade profitably within the IRS guidelines.
I'm leaning toward seeking trader tax status for the deductions and to re-enforce (in my own mind at least) that my trading activity is a business and should be treated that way, not just a hobby that I can fiddle around with.
I've filed using trader tax status for 5 consecutive years. For me the big benefit is being able to fully deduct, servers, hosting, software and other business expenses.
I trade 250 days a year and execute thousands of trades so qualifying is not difficult for me.
I believe the intent of the rule is to differentiate between people who trade for a business as opposed to people who trade part time and/or people who invest rather than trade.
Obviously the dividing line between the 3 can be highly debatable, but I guess they had to start somewhere.
While you do mention the trade frequency requirement Green Trader Tax lists several other desired requirements to qualify including
- Regular: Trades full-time or part-time for a good part of the day, almost every day.
- Frequent: Executes trades on more than 75% of available trading days. Thatís close to four days per week.
- Continuous: Has few to no sporadic lapses in the trading business during the year. One month on and one month off is not acceptable.
- Time: Spends more than four hours per day, almost every market day working on his trading business.
- Daily market movements: Makes mostly day trades or swing trades with average holding periods under a few weeks on equities and no more than 30 days on options.
- Intention: Has the intention to run a business and make a living. It doesnít have to be a ďprimaryĒ living and you can have perennial losses as the hobby-loss rules donít apply to a trading business.
Do you qualify for all of these?
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Yes, I meet all qualifications for trader tax status. I only mentioned a couple because they seem counter productive. If I was selling Avon, I would not have to meet these kinds of test (imagine having to make an average of 2-3 sales per day...)
I think there are a lot of 'traders' who do not opt for trader tax status but instead run an education or mentoring business that happens to deal with trading (or something like that) in order to have business tax advantages and not have to meet some of the specific requirements for trader tax status. I'm not in a position to do that.
Just trying to see if most of those who qualify for 'trader tax status' are filing for it and if it is hard to maintain or not given a particular trading style.
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