EDUCATION CENTER
GTT RESOURCES: TRADER TAX STATUS

News!
"Part-time traders" may qualify for trader tax status, but expect a fight from the IRS, if you don't trade every day, all day. Click here to learn more.

There are two aspects to trader tax status benefits.:
The first, business expenses, can be applied after the fact
The second, mark-to-market accounting, you must elect by April 15th of the current tax year.

Business expenses
If you qualify as being in the trading business (see our guide below), you can report your trading expenses as business expenses on Schedule C (Business Profit or Loss). This is very beneficial, because your trading expenses are treated as ordinary expenses and they can be offset against all other taxable income (ordinary and capital). Additionally, if you have a net trading business loss in excess of your other income, you may have a Net Operating Loss (NOL), which can be carried back two years or carried forward. Trading expenses include your margin interest (all the eligible types of expenses are listed in our examples guide, which is available below). The important thing to remember is that even though you may miss the mark-to-market election, you may use business expenses on your tax returns. Our firm can also prepare these tax returns.

Mark-to-market accounting
A qualifying trader may elect to use mark-to-market accounting (MTM) by April 15 of the current tax year. As an example, if you wanted to use MTM for tax year 2005, you needed to elect MTM by April 15, 2005 (MTM is fully explained in our book). If you did not elect MTM, then you may not use MTM and you must use the "cash method," which is the default method. The cash method is the same as what investors use, meaning that all trading gains and losses are treated as capital gains and losses, and you are subject to the wash sale rules (a real headache). MTM converts capital gains and losses to ordinary gains and losses, so there is no limit on the amount of losses that can be deducted (there is a $3,000 limit on capital losses). MTM traders are also exempt from wash sale rules. If you tried to elect MTM on time but did not do so because you got bad advice from your accountant, or you have some other reasonable excuse, contact us. We might be able to fix this (although the chances are small). In any event, e-mail info@greencompany.com.

Remember, even if you missed the MTM election, you still can have trader tax status and get many trader tax benefits
Don't skip trader tax status because you missed MTM. The tax benefits from deducting your trading business expenses on Schedule C are significant. On Schedule C, margin interest is not subject to "investment interest expense" limitations as it is for investors, and you can deduct many types of trading business expenses. Even if you have no taxable income, it pays to file your tax return with trader tax status, since your trading business expenses will translate into a Net Operating Loss. That can be carried back or forward, generating large tax refunds. For more information, click here.

You can also fix your prior tax returns
You are entitled to amend tax returns for the last three years (or two years from the date you filed a tax return). We can review this for you in a consultation.

Good news! Check out our new "Advocacy campaign" to seek relief for a better definition of "trader tax status." We need your help to enact this change. Click here.

For more information about trader tax status, we suggest you purchase Green's new book, The Tax Guide for Traders.

If you are not certain if you qualify for trader tax status, e-mail info@greencompany.com or call us.

Ready for a consultation with a GTT CPA