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Day Trading and Tax Preparation

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Hi Lee,

thanks for all the info, it seems Robert Green is probably one of the best choices for consulting on active day trader tax related issues. I purchased his updated 2018 book for trader tax issus and will consult with him when I start trading live over the next few weeks. It seems it's too late to make the 475MTM election unless I would form an entity. It seems then my unearned income (business profits or losses) may be turned into earned income through the entity unlocking additional benefits such as pretax deduction of health premiums as well as a retirement plan while there may be other implications such as self employment taxes that arise through trading via an entity. Otherwise IRS pub tc429 states "Gains and losses from selling securities from being a trader aren't subject to self-employment tax."

https://www.irs.gov/taxtopics/tc429

I found this interesting recorded webinar by Robert Green on Tradestation's website...it's probably worth watching for some of us US full time day traders.

https://www.tradestation.com/university/video/how-active-traders-can-benefit-from-the-new-tax-law/

We should get him to do a webinar for us her on BBT...he seems to be the authority for tax preparation.

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On 7/1/2018 at 6:56 AM, Lee W said:

To elect MTM, you have to do so when filing the prior year taxes. The last part in this link tells it:

https://greentradertax.com/trader-tax-center/trader-tax-status/section-475-mtm-accounting/

Basically, for tax year 2018 (you’ll file taxes in early 2019), you would’ve had to have made the election with your filing by April 17th, 2018 (when you filed your 2017 taxes).  

So, I've learned this is not so. You can, in good faith, elect 475 MTM accounting later in the year if you can show that you didn't know better.

It is essentially a extension that you file with the 475 request that says you're doing it as soon as possible and not because it helps you retroactively.

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3 hours ago, Norm said:

So, I've learned this is not so. You can, in good faith, elect 475 MTM accounting later in the year if you can show that you didn't know better.

It is essentially a extension that you file with the 475 request that says you're doing it as soon as possible and not because it helps you retroactively.

This is good news!  Where did you find this info?  

So you COULD file the 475 election now for tax year 2018 (for which you’ll prepare taxes early 2019)?  Normally you would have done so by 4/15 of this year  

I wonder how you know if the IRS accepts your request. Do you just make the election by way of the letter to the IRS and call it a day?

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along the same lines I have read elsewhere in your first year you can elect it later since you do not necessarily know by the previous years tax filing date what your intentions were for the remainder of the year...the above procedure would allow to cover for this e.g. for new traders.

I plan to consult Robert Green later and was  planning to get additional clarification on this question...

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Quote

 

Does anyone know, in the U.S., do you end up paying taxes on your net gains for the year or should I be tracking and assuming I pay taxes on each profitable trade I make individually?

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What if I have a regular 9-5 type job that I get a W-2 for?  Does that mean I'm out of luck filing a TTS of MTM for the trading part of my income?  I'm just starting to look into all this now so haven't gotten to go through all of the videos/links in this thread (which I will), but hadn't seen anyone mention anything about if there's a W-2 involved in your taxes so figured I'd throw the question out there.  Thanks for any help.

Edited by True

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4 hours ago, True said:

What if I have a regular 9-5 type job that I get a W-2 for?  Does that mean I'm out of luck filing a TTS of MTM for the trading part of my income?  I'm just starting to look into all this now so haven't gotten to go through all of the videos/links in this thread (which I will), but hadn't seen anyone mention anything about if there's a W-2 involved in your taxes so figured I'd throw the question out there.  Thanks for any help.

I don’t believe it means you’re out of luck, but having a regular job does make it more difficult to be TTS. Keep in mind that TTS and Section 475 MTM are two different things. You can have TTS and not elect MTM. According to Robert Green, TTS simply qualifies you for MTM. 

This link should be helpful to you:

https://greentradertax.com/trader-tax-center/trader-tax-status/how-to-qualify/

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For what it's worth, I'm working with DayTraderTax.   I took their "TTS qualification" questionnaire and had a phone consultation with a partner.  From what I understand, qualifying for TTS would be discouraged if you work a 9-5 job.   Otherwise, I would want to be TTS with MTM (with my 9-5 job).   I'd follow the advice of whatever tax professional you retain unless you are doing this all on your own.

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I was just told that in Canada you cannot set up day trading as a business, since you are not providing a service to anyone else.  Anyone else come across this? From what I read here, in the states it is a business.  Thx

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