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Thanks Tony for your informed comments. 2 more questions:
1. For a non-professional, non-dealer, private daytrader (a thousand short-term trades) who trades his own account and wishes to expense this as a sole-proprietorship on Schedule C, do you know what the "Principle Business Code" for Schedule C, line B, would be?
2. Is there any rule regarding whether this trader can switch back to Schedule D, the next year, if he so chooses?
Thanks for the info,
Barry
At 09:49 PM 3/18/98, sptradr@xxxxxxxxx wrote:
>BAC wrote:
>
>>I don't think you can have it both ways. If you file a Schedule C for a
>>business, then the profits from that business also go on Schedule C.
>>Therefore, you are subject to Self Employment Tax.
>
>WRONG...read on
>
>"A TRADER is an investor who speculates and trades securities on his own
>account. He does not hold securities for resale to customers. However,
>the trader's stock activity is of the nature that rises to a level of being
>a trade or business. If a taxpayer is classifies as a trader, gains or
>losses on securities transactions give rise to capital gains or losses
>under Section 1221. However, portfolio and investment management expenses
>and investment interest expenses become deductible without limitation under
>Section 162 in arriving at adjusted gross income. ..." from The Trader's
>Tax Survival Guide by Tesser, 2nd Ed., p.223. [substitute securites for
>futures, options, etc.]
>
>What does this all mean?
>1. The trader status has been established by the various district courts as
>well as the Supreme Court as distinct from an investor or dealer.
>
>2. A trader is also defined as primarily engaging in numerous short term
>trades throughout the year for their own account and in their own name (as
>opposed to investors who trade primarily long term positions). The key
>here is FREQUENCY of activity (numerous) and LENGTH of holding period
>(short term).
>
>3. All trading business related expenses (Section 162) are reported on the
>Schedule C. No self employment taxes need to be reported on Schedule C.
>The income is still considered to be capital gain income (or loss), and IS
>NOT subject to self-emplyment tax.
>
>4. All trading related income (defined transactions in Section 1221)
>reported on the 1099B is entered on Form 6781 (60% long term / 40% short
>term split) first and then on Schedule D.
>
>5. All trading related income is still limited to the $3,000 per year loss
>requirement (as opposed to dealer who may report all losses in any given
>year). Additional losses are then carried forward indefinitely until it is
>used up.
>
>6. Since the trading income is not earned income, but capital gain income,
>no retirement plan contribution should be made against it.
>
>One should be informed before making any tax related decisions and have a
>basic understanding of the tax law. Although I am not an accountant or tax
>attorney, I have checked with informed tax authorities and highly qualify
>tax attorneys and accountants and they assured me that these strategies are
>legitimate. Anyone who says otherwise is misinformed.
>
>Check the tax law for recent decisions regarding trader status. The courts
>routinely uphold trader status as valid. However, you must determine if
>the trader status designation applies to you. The keys are frequent
>trading activity of a short term nature, ie, you must have many more short
>term trades than longer term trades. Daytraders would definitely qualify.
>
> Tony Haas
>
>===================================
>
>"...to the last I grapple with thee;
>from hell's heart I stab at thee;
>for hate's sake I spit my last breath at thee."
>
> -from Melville's Easy Language
>
>===================================
>
>
>
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