Trader Tax Status
Trader tax status constitutes business treatment and unlocks an assortment of meaningful tax benefits.
GreenTraderTax coined the term “trader tax status” (TTS) in the late 1990s, and we’ve focused on trader tax benefits ever since. By default, the IRS considers traders to have “investor tax status” with capital loss and wash sale loss limitations, and no opportunity for employee benefit plan deductions. Before 2018, investors were able to deduct Section 212 investment expenses as miscellaneous itemized deductions, but the “Tax Cuts & Jobs Act” suspended all miscellaneous itemized deductions between 2018 and 2025.
TTS is the linchpin for using Section 162 business expense treatment, which is even more crucial for 2018 with the 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 be eligible for the new law’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.
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 qualification based on extensive analysis of trader tax court cases and dozens of years of experience preparing tax returns for traders around the country.
Go to “Explore Trader Tax Status” on the upper-right of a computer, or below on a mobile device to learn more about business expenses, how to qualify for TTS, the Section 475 election and benefits, and employee benefit plan deductions.
For more in-depth information on the tax benefits of TTS, read Green’s 2018 Trader Tax Guide. Chapter 1 includes our golden rules and many examples of traders who do and do not qualify for TTS.