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As recommended in Ted Tesser's book "The Trader's Tax Survival Guide," I
claimed trader's status the last two years when I filed my federal income tax
forms. This recently triggered an audit, and I had my first (unfortunate)
encounter with the tax man yesterday. I'm curious as to what experiences
others have had.
During the year in question, I had a fulltime job which had hours such that I
was often free during market hours. I use TradeStation, and had a realtime
datafeed during part of the year. I made some 200 plus roundtrip trades
during the course of the year, many of which were daytrades. I used a
combination of technical and fundamental analysis for my trading. In
addition, I traded less intensively with index and stock options, and it was
this latter activity which kept me from being profitable for the year. I
consider the many expenses related to trading, as well as the losses
encountered, to be the tuition required to learn a new profession. If able,
like many others, I would love to eventually give up my "night job", and
trade fulltime to support myself and my family. As it was, I averaged
perhaps 30 hours per week in trading, and in trading preparation. I felt I
had a reasonable case for claiming "trader status".
Nevertheless, it was clear that my auditor, who had never seen Ted Tesser's
book, was convinced from the outset that I was an investor, not a
professional, and that my expenses belonged in Schedule A under Misc
Deductions subject to the 2% rule, and that any interest which I had accrued
as a result of my trading was deductible only to the extent of interest
earned, with the rest being carried over to subsequent years, rather than
being totally deductible in Schedule C. He based his ruling vaguely on the
fact that I "had a fulltime profession" outside of the market, that I had not
yet made money by trading, and that I did not manage money for, or give
advice to, clients. In other words, he dismissed out of hand all the
arguments which Tesser's book gives for filing with Schedule C.
My question is, 1) have others had any experiences of this sort, pro or con?
and
2) does anyone know of an accountant in the Los Angeles area who is familiar
with the arguments in Tesser's book, with the concept of claiming "trader
status", and who might be available for consultation and/or representation?
I took the approach this time that I had nothing to hide, and the truth
should be able to speak for itself, but as that approach had not worked, I'm
willing to consider a more aggressive stance, if possible. Or would I be
better off just giving in...? What do other realtraders do???
Thanks for your help...................Larry Brown
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