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Not a tax attorney, but I've read up on this and have gotten some advice:
>It's getting close to time to deal with that annual bugaboo:
>the taxman.
>
>Having read through some posts from last year, my understanding is:
>
> * There is a special tax classification called "trader."
It's not a special classification so much as it is an occupation. But it
must be your occupation. If you're a hair stylist, you can write of
scissors and such. But you must REALLY be a hair stylist to do so, not just
cut someone's hair now and then. If you're REALLY a trader, there are a
variety of writeoffs you can use.
> * "Traders" get some nice benefits in filing -- e.g. I think
> only traders can write off all expenses of trading such as
> data feeds, software, etc?
Not to mention depreciation and expense of your home office if you have one.
> * To qualify for "trader" status, you must derive basically 100%
> of your income from trading activities. No part-time jobs
> or other outside income sources.
The percentage of your income plays a role but so does your time. For
example, I may generate 100% of my income from trading. But if I trade
infrequently, holding contracts many months, my activities may be
considered investment-oriented. If I day-trade every day -- sitting in
front of my computer during trading hours I may still have other income
sources yet may be able to claim to be a "trader" (even though the long
term approach may work out better on an ROI basis)
> * Even if you qualify for "trader" status, there are some
> disadvantages to filing as a trader, and you might not want to.
> (I don't understand why not.)
Depends. It could flag your return. I trade, but I wouldn't consider using
at as my occupation because I use my home office (the major deduction I
think for a trader) for other consulting activities anyway.
>
>Does that sound correct so far?
>
>Assuming I'm not going to try for trader status, how should I report
>my taxes? Do I have to construct a trade-by-trade history of my
>entire year? Or can I just use the beginning/ending balances of all
>accounts, automatically figuring in commissions/fees? What about
>expenses like software, data, etc? What are good legal writeoffs for
>a non-"trader" trader? What forms should I use? Any other useful
>info?
If you are not going to "try" for trader status, you will receive a report
from your FCM at the end of the year listing your gains and losses for the
year. Your positions that are open on Dec. 31 will be included. You will
report these on Schedule D under a special line on the form. There's an
arbitrary formula for assigning them as long term/short term gains/losses
(40/60 I think).
You do not need to list all of your trades but if you are going to be a
trader, it will be helpful to establish that as your sole activitity.
Expenses for trading (and investments) I believe can be written off on
schedule A subject to the 2% AGI limit (or maybe not, I forget)
Of course consult your tax advisor. If you're not going to, the JK Lasker
book that comes out each year (an is pretty cheap) is an excellent source.
Good luck
>
>Thanks,
>Gary
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