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In a message dated 97-11-06 15:54:11 EST, LB122134@xxxxxxx writes:
> 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???
Larry and Group
First I left the whole message in incase someone missed it and most
of it is pertinent. I talked with my accountant in depth and with another
accountant I met on the internet. Remember Ted's book is just HIS opionion.
Doesn't mean squat to the IRS. Here are some of what I was told:
1. Has to be established short term trading, 30 days or less
2. Daytrading with a live feed is ideal for verifying number 1.
3. Has to be your full time business (not something along with a job)
4. Has to be profitable.
(3 and 4 Larry may be what they are using to deny your claim.
One other biggie, that both accountants told me they disagreed with Tessler
on is Self Employment Tax. The both said that since its a business, any
money you take for your self is subject to self employment tax which is a
straight 15% right off the top. That could wipe out any potential deduction
savings when you are profitable, and if you aren't they have you on that.
Bottom line to me was for now, not worth the hassle. Be curious what
others have heard and think
Pete
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