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Chuck,
I agree that the book was probably misnamed; only one chapter was devoted
to the "trader" status issue.
The reviewer you quoted was a little confused when he said you lose capital
gain treatment and must pay Social Security and Medicare taxes on your
self-employment income. All gains or losses from trading are reported on
Sch D, the form used for reporting capital gains and losses. No
self-employment taxes are paid on capital gains, only on earned income
reported on Sch C. To recap, trade income and losses are reported on Sch
D, and trade-related expenses are reported on Sch C.
IRS rules for determining participation in a trade or business are
surprisingly lenient. It is possible for an individual to be involved in
numerous separate trades or businesses simultaneously. You may want to
check out the requirements in the Sch C instructions.
Thanks for your response.
Bill
----------
> From: Chuck Wemlinger <yeti@xxxxxxxxxxxxxxx>
> To: metastock@xxxxxxxxxxxxx
> Subject: Re: Using "Trader" Status for Income Taxes
> Date: Wednesday, March 10, 1999 4:05 PM
>
> Hi Bill,
>
> What did you think of the book? I went to Amazon to check it out and was
> suprised to see it was about $80. The readers reviews were interesting.
> Most felt it did not dedicate enough coverage the subject of taxes as it
> applies to the Trader as the title would indicate.
> Here is one of the more interesting reviews:
> "This book gives a unique point of view so, it does not duplicate what
you
> can get in other tax books. It advocates you try to qualify for 'Trader
> Status', and there are several Supreme Court tax cases concerning this
> difficult to qualify status. This status means that your TRADE as a
serious
> business, hold postions for generally less than a month. All your
expenses
> become fully deductable on Schedule C, HOWEVER you lose Capital Gain
> treatment AND must pay Social Security and Medicare taxes on your Self
> Employment income but you can set up a pension plan and/or SEP IRA. I
think
> there is too great a danger of a nasty IRS audit, and not enough taxes
> saved. A difficult route for a Futures Trader, nearly impossible for a
Stock
> trader except for some SOES traders."
>
> My understanding of the situation is that if you show income from another
> source like a job or business, then there's little chance that you can
> convince the IRS that you're in the business of trading (even if you
trade
> commodities and hold for short periods). Therefore while you show
> gains/losses on Schedule D, you cannot deduct or expense any of your
> operating costs like telephone, computers, software, etc.
>
> If you're not certified or licensed and trade only your own commodities
> account as your primary source of income are you only self-employed or
are
> you in the "business of trading", and can expense or amortize your
various
> expenses? I guess it's up to the individual to decide it they want to
risk
> a potential test by the IRS.
>
> -----Original Message-----
> From: Bill Coward <wrcoward@xxxxxxxxx>
> To: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
> Date: Tuesday, March 09, 1999 7:37 PM
> Subject: Re: Using "Trader" Status for Income Taxes
>
>
> >Lou,
> >
> >According to Ted Tesser, author of TRADER'S TAX SURVIVAL GUIDE, and a
CPA
> >and tax accountant specializing in investment taxation, trading activity
is
> >considered to be capital gain income (or loss) and should be reported on
> >Schedule D. It should not be reported on Schedule C, the form for
> >reporting earned income from a business or trade, nor should it be
reported
> >on Schedule SE, the form for calculating self-employment tax on earned
> >income from a business or trade. He goes on to say that, since the
income
> >is not earned, no retirement plan contribution should be made against
it.
> >
> >Thanks for your feedback.
> >
> >Bill
> >
> >----------
> >> From: Lou Baker <louab@xxxxxxxxxxxxx>
> >> To: metastock@xxxxxxxxxxxxx
> >> Subject: Re: Using "Trader" Status for Income Taxes
> >> Date: Tuesday, March 09, 1999 12:40 PM
> >>
> >> Bill, although not a direct answer to your question, look carefully at
> >the
> >> self-employment tax you may be liable to pay if you claim a trade or
> >> business, unless you max out on other earned income, of course. Lou
> >>
> >>
> >
>
>
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