Trader Tax Status

Trader tax status is the ticket to tax savings.

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

Business expenses include subscriptions, 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, accounting fees, and much more.

Securities traders with TTS should consider a timely election of Section 475 ordinary gain or loss treatment, due by April 18, 2023, for individuals and March 15, 2023, for existing partnerships or S-Corps. A 2022 Section 475 election was due by April 18, 2022, for individuals and March 15, 2022, for existing entities. I call Section 475 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. QBI has income thresholds and a cap for trading, which is a specified service trade or business (SSTB).

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

A TTS partnership or S-Corp can do the SALT cap workaround solution. 

Go to “Explore Trader Tax Status” to learn 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.