Trader Tax & Accounting Service

We can assist you in your tax and accounting needs. If you are an active trader, there are many tax advantages available to you if you meet certain requirements relating to your time commitment, frequency and quantity of trades. If you meet the conditions, you are eligible to deduct as ordinary expenses most trading expenses plus investment interest (margin) without limitation, health insurance above the line and qualified retirement contributions.

 

What is trader tax status and do you qualify?

 

There are some key differences between investors and business traders who trade for a living. In order to be treated by the IRS as being in a trade or business, the trader must meet certain benchmarks. Failure to meet these statistical metrics will result in denial of trader tax status. This will limit the deductions one may take, such as a home office or the amount of margin interest deductible. It will also mean that the trader is treated as an investor who may not make the advantageous 475(f)MTM election and must use cash basis accounting for trades which includes the onerous wash sale rule.

 

It is often unclear whether an active trader qualifies for trader tax status, and our associated CPA firm (www.rosstaxcpa.com) makes that determination when they know all the facts and circumstances. They do much of the same work for both investors and business traders. Active securities traders face issues with cost-basis reporting and Form 8949, whether they rise to the level of trader tax status (business treatment), or not.

 

The following questions assist them to determine whether you qualify for trader tax status:

 

Excluding your retirement and accounts exclusively held for investment:

 

• Do you complete at least 500 round turns a year?

• Do you trade every day or most days?

• Do you maintain a separate office for your trading?

• What is the average holding period of your trades?

• Do you have other full time employment?

• Do you currently trade through an entity?

• Should you form an entity?

 

Traders who qualify may also make a 475(f) election to mark-to-market their year-end positions . The taxpayer would then determine gain and loss on all open and closed positions as if all positions were closed. The gains or losses under this election are treated as ordinary gains or losses which are taxed at ordinary rates rather than capital rates. The benefit here generally outweighs the cost. First, if your trades are truly short term in nature, as is required to meet trader tax status, then the gains would be taxed at rates that currently equal the ordinary tax rates so no detrimental difference results. However, in the event of a loss, the losses are eligible to offset against other gains with no limitation. Further, if the losses exceed all other income, you may have a NOL (net operating loss) which can then be carried back against all other income in the preceding 2 years or forward for 20 years (2017 TCJA eliminated NOL carrybacks but the CARES Act has reinstated NOL carrybacks with limitationsCall www.rosstaxcpa.com with questions ).This is versus the capital loss limitation of $3,000 per calendar year which cannot be carried back, only forward. These rules are complex and require consultation with your tax advisor.

 

An entity looks better to the IRS on trader tax status qualification issues, unlocks AGI tax deductions for retirement plans and health insurance premiums and provides more flexibility on late-year Section 475 MTM elections.

 

If you elected Section 475 MTM for 2017 on your existing entity or as an individual sole proprietor business trader, you need to perfect that election with a Form 3115 (Change of Accounting Method) filed on time with your 2017 tax return. Form 3115 must be filed in duplicate; one copy with the tax return and a second copy with the IRS national office.

 

Trade Accounting With Tradelog

 

Many traders don't want to deal with accounting for securities, and confusing IRS cost-basis reporting problems. TradeLog software is a good solution for securities traders. A separate license is required. While many securities traders use TradeLog on their own, others prefer that a highly-experienced CPA complete this important accounting work for them. Most basic accounting and tax preparation programs are useful for general finances and simple tax preparation, but not for extremely active trade accounting. Most don't account for wash sales, or short sales or mark-to-market accounting correctly.

Many CPAs and tax preparers have clients that get involved with a material volume of securities trading. While these other tax preparers may be great in other industries, they don't know trader tax and cost-basis reporting rules well enough. Allow us to help you.

 

Want a Quote?

 

If you prefer, e-mail our associated CPA firm (www.rosstaxcpa.com)  with your number of accounts, approximate number of transactions, list your brokers, tell them if you have cash or mark-to-market (MTM) accounting and mention if you have complex transactions if you use the cash method .E-mail us at rosstradingschool@gmail.com. We will quickly refer you and reply with a time and cost estimate for the trade accounting services.A separate program license is required.TradeLog® is owned by Armen Computing a third-party firm, entirely independent of RSTIM. If you want our support on the product in tax preparation or otherwise, you need to purchase the program through them.

 

Disclaimer:The use of TradeLog branded products is governed by Armen Computing Ltd. (“Armen”) applicable license agreements. TradeLog and the TradeLog logo are registered trademarks and/or service marks of Armen. Armen is solely responsible for the information, content and software products provided by it.