Trader Tax Status

Trader tax status constitutes business treatment and unlocks an assortment of meaningful tax benefits.

Trader tax status (TTS) is the linchpin for using business expense treatment, which is even more crucial for 2018 with TCJA’s suspension of investment expenses. TTS traders may file a timely Section 475 election for exemption from capital loss limitations and wash sale loss adjustments, and to likely be eligible for TCJA’s 20% deduction on qualified business income (QBI). TTS traders use an S-Corp trading company or C-Corp management company to unlock employee benefit plan deductions including health insurance and a retirement plan. Investors don’t get any of these tax benefits!

The IRS recognizes TTS, but it does not provide a bright-line test for qualification. That’s where we come in with our “golden rules” for eligibility based on extensive analysis of trader tax court cases and dozens of years of experience preparing tax returns for traders around the country.

There’s no election for TTS; it’s an optional tax status based on facts and circumstances only. A trader may qualify for TTS one year but not the next. TTS qualification can be for part of a year, as well.

Go to “Explore Trader Tax Status” to learn more about business expenses, how to qualify for TTS, the Section 475 election and benefits, and employee benefit plan deductions.

Excerpt from Green’s 2019 Trader Tax Guide