Trader Tax Status

Trader tax status is the ticket to tax savings.

Trader tax status (TTS) constitutes business expense treatment and unlocks an assortment of meaningful tax benefits for active traders who qualify. The first step is to determine eligibility. If you do qualify for TTS, you can claim some tax breaks such as business expense treatment after the fact and elect and set up other breaks — like Section 475 MTM and employee-benefit plans — on a timely basis.

Business expenses include home-office, education, startup expenses, organization expenses, margin interest, tangible property expense, Section 179 (100%) or 100% bonus depreciation, amortization on software, self-created automated trading systems, seminars, market data, stock borrow fees, and much more. The new tax law TCJA suspended “certain miscellaneous itemized deductions subject to the 2% floor,” including investment fees and expenses, commencing in 2018.

Securities traders with TTS should consider a timely election of Section 475 ordinary gain or loss treatment; due by April 15, 2020, for individuals and March 16, 2020, for existing partnerships or S-Corps. I call it tax-loss insurance: It exempts securities trades from wash sale loss adjustments and the $3,000 capital loss limitation. Profitable 475 traders are eligible for the 20% qualified business income (QBI) deduction; whereas, QBI excludes capital gains and losses.

A TTS S-Corp unlocks deductions for health insurance premiums and high-deductible retirement plan contributions.

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.

For more information, see Green’s Trader Tax Guide Chapter 1 on Trader Tax Status.

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