EDUCATION CENTER
GTT TAX CENTER FOR TRADERS

This free resource will get you started. As a next step, we suggest you purchase our trader tax guides, software, consultations and preparation services.

For our latest Content see Robert Green's blog.

Our companion tax center for Hedge Funds is included in our hedge fund section, click here.

Trader Alliance: Traders often get the short end of the stick when it comes to health-insurance plans and other group benefits, but the GTT Alliance for Traders can help.

Trader Tax Status: If you qualify as being in the business of trading, you have trader tax status. Learn what it is and how you can get it.

Mark-to-Market accounting: The new trader tax laws of 1997 are IRC Section 475(f); these allow Traders in Securities (475(f)(1)) and Traders in Commodities (475(f)(2) to elect mark-to-market accounting by April 15 of the current tax year (not after the year ends). The main effect of this new tax law is to convert capital gains and losses into ordinary gains and losses.

Missed the mark-to-market (MTM) election for 2004: If you missed the mark-to-market election for 2004 (meaning you didn't elect by April 15, 2004), you can still benefit from the first part of trader tax status, reporting your trading business expenses on a Schedule C. There might be a few things you can do.

Extensions for MTM elections: If you miss the MTM election by April 15th of the current tax year, and you act by Oct. 15th, you may be able to receive an extension of time to file your current year MTM election. Reg § 301.9100-1 "Extensions of time to make elections" provides relief for late elections. Note: The maximum extension period is six months.

Extensions: Read this excerpt from Robert A. Green's article in Active Trader magazine. Tax returns for 'sole proprietor' traders are due on April 15th - that's also the deadline for electing mark-to-market (MTM) accounting for the current tax year. By filing an extension and attaching your MTM election to the extension, you'll get four extra months to learn about trader tax law. You can file a 2nd extension on Aug. 16th for two more months time until Oct. 15th.

Private Letter Rulings: If you missed MTM (see above), your only relief to use MTM may be a private letter ruling. The PLR procedure is pain-staking and expensive and for traders seeking relief to use MTM, and the chance of success is extremely small.

Part-time traders: Part-time traders may qualify for trader tax status. However, be ready for a fight from the IRS if you don't trade every day, all day. If you have another job or business activity besides your trading business, you should be aware that the IRS may challenge your trader tax status in a future tax exam.

Money-losing traders: Traders who lose money every year may be challenged by the IRS under the "not-for-profit activity loss rules" (otherwise known as the "hobby loss" rules).

Net Operating Losses (NOLs): Business taxpayers are allowed a special huge tax benefit – Net Operating Loss (NOL) tax laws. These laws provide the opportunity to carry back or forward business losses. Make a fortune in one year and pay your taxes, then lose a fortune in the following years and carry back your NOLs to get huge refunds of taxes paid in the prior (profitable) years. If this sounds too good to be true, it isn’t. And, you are in luck – these tax benefits just got even better.

IRS Exams: The IRS is turning up the heat on traders and you should read this page before you let the IRS get the better of you.

Scams & Alerts: The idea of "avoiding" taxes on income sounds appealing to many traders, but look before you leap. The IRS considers "tax avoidance" against the law. We have reviewed many tax avoidance schemes marketed to traders and we strongly advise traders to stay clear of these schemes and the firms that promote them.

Advocacy for trader tax matters: Kindly take 15 minutes of your time to read cause & mission and desired tax law changes. Afterwards, please send out one or more of our standard advocacy e-mails. If thousands of traders send these e-mails, we believe our mission will be a success.

Wash Sales: Securities traders and investors are subject to the "wash-sale” loss deferral rules. Securities traders using mark-to-market accounting (475(f)(1)) are exempt from wash sales. Wash sales are a major headache for active traders, because they are very difficult to calculate and they increase your tax bill. Wash sale losses are not realized in the current tax year and instead deferred to the next tax year. If you exceed the $3,000 capital loss limitation, wash sales can be desirable. When electing MTM in the following year, wash sales are part of your Section 481 ajustment "ordinary loss," which is better than an excess untilized capital loss.

Commodities: Commodities are taxed differently from securities. You need to learn about IRC Section 1256 contracts, Form 6781 and special carry backs, and how they relate to IRC Section 475(f), the new mark-to-market rules.

Currency Trading: Special tax rules apply: Currency traders transact in contracts on regulated commodities exchanges (regulated futures contracts (RFC) on currencies) or in the non-regulated "interbank" market (a collection of banks giving third party prices on foreign current contracts (FCC) and other forward contracts). Learn below how currency traders are taxed similar to commodities traders, except that interbank currency traders must "elect out" of IRC section 988 (the ordinary gain or loss rules for special currency transactions) if they want the tax-beneficial "60/40" capital gains rate treatment of IRC section 1256.

Single-Stock Futures: The IRS considers "single-stock futures" to be "securities futures contracts." Single-stock futures are taxed like their underlying securities (stock, options and narrow-based indices) and not like commodities (commodities, futures, FOREX and wide-based indices). Plus, gains on single-stock futures are always short-term capital gains.

Securities vs. Commodities: A bevy of new products have hit the market in the last few years – ETFs, E-Minis, single-stock futures, new indices, and options and futures on almost everything. Learn how all these new products are taxed, and why it matters to you.

Pattern Day Trader: The NASD passed new margin rules, which require $25,000 of trading capital for “pattern day traders.” The SEC has a distinct definition of "pattern day traders." We explain how these rules may affect your trader tax status and tax situation.

Proprietary Trading: When you take a "job" or "position" with a proprietary trading firm and trade the firm's capital (instead of trading with your own money), you are considered to be "proprietary trading." Proprietary firms handle tax matters in a variety of ways: "employees" get a W-2; a Form 1099-Misc. is used for "independent contractors"; and Form K-1s for LLC members. In many cases, the firm handles taxes for its traders in an inappropriate way. In those cases, proprietary traders can benefit from overriding the firm's tax handling, gain trader tax status and report their true economic gains and losses as a "trader in securities."

Self-Employment Taxes: Unlike all other types of "sole proprietorship" or "unincorporated" businesses, securities and/or commodities traders, with trader tax status, with the mark-to-market or cash methods of accounting, are exempt from self employment taxation (SE taxes).

Health Insurance and HSAs: Traders are responsible for purchasing their own health insurance, but they must structure their business properly so they can deduct their health-insurance premiums or their contributions to Health Savings Accounts (HSAs). HSAs are retirement plans that can also be used to pay medical bills and related expenses.

NASDAQ Data Feed Fees: Business traders are entitled to lower “non-professional” data feed fees, so be careful not to trigger the higher fees inadvertently. Licensed brokers, registered professionals and entities must pay higher “professional” rates. Even if your broker offers to pay your non-professional fees, be aware that if Nasdaq considers you a “professional,” you are responsible, not your broker.

Trader Entities: The best reason for a trader entity is to establish a retirement plan and/or other tax deductible and tax deferred employee benefit plans. These are not available for sole proprietor traders (who otherwise receive all trader tax status and MTM accounting benefits).

Trader Retirement Plans: Every consistently profitable trader should have one. Recent tax law changes have increased the deductible contributions dramatically. Check out our incredible new tax savings strategy for traders using a GTT Mini 401(k) Plan.

Fringe Benefit Plans: As an owner/employee of your trading business, you have limited opportunities for “fringe benefit" plans. By employing your spouse and classifying yourself as a “spouse of a non-owner/employee,” you can unlock valuable fringe benefit plan tax savings.

Non Resident Traders: Many "international taxpayers", who otherwise do not pay U.S. taxes, have opened U.S.-based brokerage accounts and they have questions about what U.S. taxes they owe. We provide a full set of resources for international investors, traders and proprietary traders. If the non-resident is a member of a U.S.-based "pass through" taxable entity, in the business of trading securities or commodities, that person has "effectively connected income" (ECI). That person must file a non-resident tax return, Form 1040NR, to report their ECI income and pay U.S. taxes on that income.

Tax strategies: Active traders/managers in hedge funds and other types of “trading” companies should learn how they can use “trader tax status” and the “trading rule” (a tax loophole) to deliver business tax breaks to their investors (including mark-to-market accounting, which acts as tax loss insurance).

Year-End Tax Planning: Wise taxpayers should do tax planning before year-end. Traders have special circumstances that make year-end tax planning even more paramount. Certain moves can save you a fortune for next April 15.

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