Trading Business Expenses

If you qualify for trader tax status, you can use the more favorable business expense treatment.

TTS traders can deduct all reasonable business expenses, whether they have trading gains or losses, saving around $5,000 per year on average.

Business deductions include:

•    Tangible personal property like a computer, up to $2,500 per item, providing the taxpayer files a Sec. 1.263(a)-1(f)) safe harbor election with the tax return.

•    Section 179 (100%), bonus, and/or 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 commencement of the trading business activity. (Otherwise, pre-business education may not be deductible, or it may be included in Section 195 start-up costs.)

•    Books/publications, market data, online and professional services, chat rooms, mentors, coaches, supplies, phone, internet, travel, seminars, conferences, assistants, consultants, and more.

•    Home-office expenses for the business use portion of a trader’s home (share of 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.

Business deductions don’t include:

•    Vehicles

•    Commissions

•    Employee-benefit plan deductions including health insurance and retirement plans. A TTS S-Corp can deduct these items.

Investors can only deduct:

• .   Investment-interest expenses limited to investment income.

•    Stock-borrow fees for short sellers as an “other itemized deduction.”

Excerpt from Green’s 2019 Trader Tax Guide Chapter 5 on Trading Business Expenses.