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Here is some information from the IRS about a special tax deduction for the self-employed. If you are filing your taxes as a "Trader in Securities" using schedule C then you will be considered to be self employed. To read the entire IRS news click here.
6 comments:
I have been told to move just enough gains from Sched D to Sched C to cover business expenses and thus zero out Sched C, however the Health Ins break comes off the 1040, not Sched C. Do you suggest adding that much more to the gains on Sched C to cover the 1040 Health Ins credit? I'm not paying SE taxes, and doing this (at least when using Turbo Tax) seems to force SE taxes on the Hlth Ins portion of income.
Thanks for the comment Anonymous, however I am really puzzled. If you are an active trader and meet the IRS qualifications, you can file the schedule C, but your trades do not go on it, they belong on either Schedule D (Stocks & Options) or 6781 (Futures) Spot Forex can also be converted to a 1256 contract and then it also will be reported on Form 6781. So again my confusion, how are you reporting trading income on Schedule D, and even more confused, how can you pick and choose which trades you consider business trades, and which trades you do not. Help me out here Anonymous tell me more. Regards, Jim
OOps I did not mean to say "how are you reporting trading income on Schedule D", of course that is where it belongs, but your statement that you move your trades to schedule C is where I am puzzled. jc
Sorry for "Anonymous", name is Steve. I'm an active trader of stocks only, not Forex. This was what another trade accounting "expert" has suggested, so you don't show Sched C losses each year and raise a red flag. They said show a deduction off Sched D in the amount of your expenses, balanced by an addition to Sched C of the same amount, with a note indicating what you are doing.
So now couple of questions: In your opinion, do you show losses on C each year and leave it at that?
Back to Health Ins, do you deduct that on 1040 line 29? I just tested that out by zeroing my Sched C revenue and Turbo Tax eliminated the 1040 line 29 amount.
Lastly, if you show no Sched C revenue, does that not also reduce the ability to deduct a home office?
Can I re-ask my question in a more simple way?
From the IRS page you have linked: "A self-employed individual with a net profit reported on Schedule C (Form 1040)..."
How would you suggest a trader record this tax break if their Sched C doesn't show a profit as it only includes expenses?
That my friend is the 1 million dollar question. I know of people who will write “see schedule d” on their schedule c, but of course the IRS computer is not going to see that. Wish I could be of more help, and this is why we generally recommend to our active trader clients that they use an entity of some type to trade in, it becomes much easier then. However there is no cookie cutter approach to tax savings, so before you ask i do not know what entity would be the most tax efficient for you to use. If you are curious, go to our website, www.tradersaccounting.com and in the upper right hand corner you can sign up for a free consultation with one of our people.
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