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GreenGTTCPAAdministrator
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Are 200 trades enough to qualify for business new
      #7 - 10/31/03 07:18 AM
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Are 200 trades enough to qualify for business treatment?

Assume a trader has another full time job as a software engineer and also trades as a part-time activity. This trader has 200 round turn trades per year and took 3 months off from trading entirely. The trader held positions open for 1 to 14 days on average. Does this trader qualify for trader tax status?

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Robert A. Green, CPA & CEO
GreenTraderTax.com

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Jake_Carriker
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Reged: 10/31/03
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Re: Are 200 trades enough to qualify for business new
      #8 - 10/31/03 04:00 PM
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Just a quick note to say thanks for the forum! I think it has the potential to be invaluable for those of us that are active traders and those of us starting a trading business. There are a million little questions that are too specific for a FAQ and not important enough on their own for a consultation. This forum may be the perfect middle ground.

Thanks again,
Jake Carriker

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kekona
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Re: Are 200 trades enough to qualify for business new
      #10 - 10/31/03 06:37 PM
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great question... I am a web developer trading part time. So tell us more Robert.



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KidTrader
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Re: Are 200 trades enough to qualify for business new
      #11 - 10/31/03 10:30 PM
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[quote]Are 200 trades enough to qualify for business treatment?

Assume a trader has another full time job as a software engineer and also trades as a part-time activity. This trader has 200 round turn trades per year and took 3 months off from trading entirely. The trader held positions open for 1 to 14 days on average. Does this trader qualify for trader tax status? [/quote]

i will guess no.

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Anonymous
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Re: Are 200 trades enough to qualify for business new
      #12 - 11/01/03 08:14 AM
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Well if 200 short term trades aren't enough, then what does justify a traders business legally..

thx

GT :cool: :o

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GreenGTTCPAAdministrator
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Re: Are 200 trades enough to qualify for business new
      #14 - 11/01/03 08:48 AM
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[quote]Well if 200 short term trades aren't enough, then what does justify a traders business legally..

thx
GT :cool: :o [/quote]

200 round turn trades can be enough to qualify, but all your other factors need to be very strong.

Your intention needs to be clear, 'to profit from quick swings in price and not long term profit appreciation and dividends.'

Your trading business should be your main business activity or job and provide your means of 'making a living.' You can have other jobs, but then the IRS raises the bar and wants to see even more trades.

A specific number of trades are not required in any of the IRS laws. Instead, tax court cases say yes or no on trader tax status for different cases with different number of trades. One case said no on 150 trades; an IRS agent recently said yes.

You need to make your own trades and not use a broker. Some court cases had brokers making the trades and that was the reason they ruled no.

You need short term holding periods of day trades to a few days. Holding positions open for weeks hurts your status.

You need to spend hours every day all day in your trading business and use all the tools of the trade. You should have a serious amount of trading business expenses; around $5,000 or more.

Sporadic lapses in your trading activity also hurts your trader tax status.

The IRS sees every one of your stock sales on your Form 1099-B, but they don't see your commodities trades.

When you are a close call on trader tax status, we recommend a strong footnote with your tax return to nip any IRS questions in the bud.

If you are a very close call, consider increasing your volume with very small positions.

Good questions and thanks,

--------------------
Robert A. Green, CPA & CEO
GreenTraderTax.com

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GreenGTTCPAAdministrator
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Re: Are 200 trades enough to qualify for business new
      #24 - 11/01/03 11:09 AM
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[quote]great question... I am a web developer trading part time. So tell us more Robert.
[/quote]

We have many part time trader clients who use trader tax status.

The IRS Web site says trading must be your primary activity. This is unofficial and not included in any IRS laws or official publications. Our friend in Washington DC who works for the IRS and wrote the trader tax laws told us to not rely on that IRS Web site statement.

Lots of rich people have multiple businesses and jobs and they are all business activities. The problem is that business trading and non-business investing are very similar activities and the only difference is the volume of trades and some other factors (covered in an earlier post).

The IRS is prejudiced to think that active investing is a hobby type activity that people get hooked on for fun and action, sort of like gambling. They especially think this when a part time trader has losses year after year.

What the IRS does not focus on or even have access to see is the trader’s intention, which is the main factor for trader tax status. Some part time traders plan to leave their jobs soon or are worried about being laid off. They are in search of a new career that provides independence, excitement and use of their talent and skills. Trading is an easy business to start, you don’t need any customers.

If you are a part time trader, you need to tell your story to the IRS on your tax return in a positive and strong manner, to nip any IRS questions in the bud.

If you have a W-2 salary and Schedule C trading business expenses (a net loss) and Schedule D (cash method) or Form 4797 (MTM method) trading losses, the IRS may seek to deny you part time trader tax status. The IRS is prejudiced to their position and they don’t like paying tax refunds unless they have to.

The IRS will look over your individual tax return, see your W-2 and assume that is how you make a living. They are then prejudiced to challenge your trading business if your number of trades is low.

If you left a job in May and started your trading business in June, then show that on your tax return very clearly. We show a wage statement showing “left May” and the Schedule C showing “started in June.” We explain that you were a fulltime trader starting in June.

If you are a part time trader all year and live on the West Coast, we might say (if those are your facts) that you trade in the early morning market hours before you go to work. The NY stock markets open at 6:30am PT.

If you are a Web developer and have Internet access all day from work plus flexible work hours, you can explain how you are active in the trading markets at your desk during market hours; and in your home office before and after market hours.

Every trader has a different story. We have a chapter on part time traders in our Trader Tax Status and MTM Guide. You can also purchase a 15 minute consultation with us to review your exact facts and circumstances. We can tell you if you qualify and how we would explain it on your tax return.

If you have trader tax status but a weak case, it may be a wise idea to form an entity like an S-Corp, husband wife general partnership or multi member LLC. These entities file separate tax returns and the IRS then has a harder time putting ‘two and two together.’ A single member LLC is not good, since you report that activity on your individual tax return. An entity with your spouse is also good for the reason that if your spouse doesn’t otherwise work he or she can spend some time in the trading business; which increases some of the factors required for trader tax status. An entity alone does not give you trader tax status; you still must meet all the factors.

--------------------
Robert A. Green, CPA & CEO
GreenTraderTax.com

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steveb
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Reged: 11/12/03
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Re: Are 200 trades enough to qualify for business new
      #148 - 11/21/03 08:20 PM
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Quote:

[ Some part time traders plan to leave their jobs soon or are worried about being laid off. They are in search of a new career that provides independence, excitement and use of their talent and skills. Trading is an easy business to start, you don’t need any customers.

If you are a part time trader, you need to tell your story to the IRS on your tax return in a positive and strong manner, to nip any IRS questions in the bud.





This describes my situation very well. I expect my job to go to Taiwan in the next 12-18 months and have been trading at work trying to build my account and trading skills. How would one explain this on a tax return? Do you just attach a letter or something?

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GreenGTTCPAAdministrator
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Re: Are 200 trades enough to qualify for business
      #149 - 11/22/03 09:48 AM
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Yes, we always included a footnote with every tax return prepared for a trader.

For part-time traders we add a paragraph explaining why they qualify.

We have all these footnotes in our Individual Tax Return Examples Guide. http://www.greencompany.com/Traders/GuidesIndividualExamples.shtml

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Robert A. Green, CPA & CEO
GreenTraderTax.com

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ugz
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Re: Are 200 trades enough to qualify for business new
      #335 - 04/05/04 10:44 AM
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My situation is I will be doing this FULL-TIME, but want to know if I will have any trouble getting trader tax status (TTS) since I average 15-20 trades per month, some months more or less, and may hold a small percentage (20%) of the trades up to three weeks, i.e., some day trading but mostly swing. Would I still qualify? Why or why not?


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