Trading Business Expenses

You can use the more favorable business expense treatment if you qualify for trader tax status.

Traders eligible for trader tax status (TTS) can deduct all reasonable business expenses.

Business expenses include:

• Tangible personal property like a computer, up to $2,500 per item.
• Section 179 (100%), bonus, and regular depreciation on computers, equipment, furniture, and fixtures.
• Amortization of start-up costs (Section 195), organization costs (Section 248), and software.
• Education expenses paid and courses taken after the commencement of the trading business activity. (Otherwise, pre-business education may not be deductible or included a portion in Section 195 start-up costs.)
• Books, publications, subscriptions, market data, online and professional services, chat rooms, mentors, coaches, supplies, phone, internet, travel, seminars, conferences, assistants, consultants, accountants.
• Home-office expenses for the business use portion of a trader’s home (share of the rent, mortgage interest, real estate tax, depreciation on home, utilities, repairs, insurance, and all other home costs).
• Margin interest expenses (not limited to investment income).
• Stock-borrow fees for short-sellers.
• Internal-use software for automated trading systems.

Employee-benefit deductions

• Health insurance and retirement plans. (A TTS S-Corp can deduct employee benefits, not a sole proprietor.)

Business deductions don’t include the following:

• Vehicles. (Traders don’t use autos daily for business.)
• Commissions are part of the trading gain or loss.

Investors can deduct the following:

• Investment-interest expenses are limited to investment income as an itemized deduction.

For more information, see Green’s Trader Tax Guide Chapter 5 on Trading Business Expenses.