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EDUCATION CENTER
INTERACTIVE: GTT MESSAGE BOARD
Proprietary Trading
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Tax issues if working for a proprietary trading firm
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Trader59
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stranger
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Reged: 05/24/09
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Posts: 1
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Prop Income and FEIE
#701 - 05/24/09 06:35 AM
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I get a k-1 from my NYC-based prop firm for mt trading income.
1. Is that income exempt from taxes under Foreign Earned Income Exclusion (I live overseas)?
2. Is it exempt from Social Security/Medicare tax?
3. Can either or both of these be accomplished (the firm will not issue the k-1 to a LLC, only to an individual)?
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Re: Prop Income and FEIE
#712 - 08/06/09 09:48 AM
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No, in general, prop traders receive a K-1 showing their share of trading gains, with or without MTM.
Like for a retail trader, trading gains are not earned income, and therefore free of SE tax. Without earned income, you can not have a retirement plan contribution or consider it foreign earned income for a Section 911 foreign earned income exclusion and housing allowance.
It's also not earned income for NYC UBT tax, providing the firm has no other sources of earned income like commissions.
If you join as an LLC member, you may be able to financially-engineer some earned income. But most firms don't allow entity members, since they need to control who has access in the firm through the members and all usually must be licensed and registered brokers with the firm too.
One exception on SE tax. If you or the firm you trade through are members of a futures or options exchange, trading futures and options on those exchanges are earned income for purposes of SE tax and AGI deductions (and Section 911 too).
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Robert A. Green, CPA & CEO
GreenTraderTax.com
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