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Suppose someone works a 40hr/wk job, but also actively manages investments, and at some point the investments begin to produce more income than the job. Does that change the persons "occupation" for tax purposes? If so and they are managing the investments from home, does that legitimately give them the right to claim a portion of home expenses as tax deductions?
To deduct the home office and other expenses you need to file as a trader. But to qualify for trader status, you need to trade often and for short duration--basically it needs to be your primary job.
Suppose someone works a 40hr/wk job, but also actively manages investments, and at some point the investments begin to produce more income than the job. Does that change the persons "occupation" for tax purposes? If so and they are managing the investments from home, does that legitimately give them the right to claim a portion of home expenses as tax deductions?
The codes on a schedule 'C' are very specific in defining what your occupation is.
However next to your signature on the 1040, I have never seen any guidance on how you define what your primary profession is.
"defender of virtue"
"Builder of family values"
Does it really matter? No.
If you have a home office, there is a lengthy set of guidelines for how to handle that home office. How it becomes a tax write-off and exactly how to determine it. You need to read the IRS pub on the subject.
It it is legitimate and follows the IRS guidelines then use it.
Never lie to the IRS, never try to 'cheat' the IRS.
That being said I see no reason why you could not do as you are suggesting.
I once had an investment portfolio that was growing in assets by more than my professional income. At the time I was not taking any money out of my portfolio, I was managing it in a manner to grow, and to be a tax shelter.
I did have the option of using the home office write-offs. I did not choose to use them however, as the guidelines are rather strict, and I did not wish to tempt the auditors into disallowing anything that I did.
I was audited several times, and they never disallowed any of the write-offs that I was using.
Smart advice, and as it comes from a bee keeper...
... you can be sure he knows what happens when one "messes with the hive"!
I follow a similar "stay under their radar" strategy with my tax returns too. If you stay outside the norms for your occupation / income / deductions you trigger computerized or manual audits. Those audits take time and bring with them the possibility of having previous tax years sructinized.
Not worth the risk.
Quote:
Originally Posted by forest beekeeper
The codes on a schedule 'C' are very specific in defining what your occupation is.
However next to your signature on the 1040, I have never seen any guidance on how you define what your primary profession is.
"defender of virtue"
"Builder of family values"
Does it really matter? No.
If you have a home office, there is a lengthy set of guidelines for how to handle that home office. How it becomes a tax write-off and exactly how to determine it. You need to read the IRS pub on the subject.
It it is legitimate and follows the IRS guidelines then use it.
Never lie to the IRS, never try to 'cheat' the IRS.
That being said I see no reason why you could not do as you are suggesting.
I once had an investment portfolio that was growing in assets by more than my professional income. At the time I was not taking any money out of my portfolio, I was managing it in a manner to grow, and to be a tax shelter.
I did have the option of using the home office write-offs. I did not choose to use them however, as the guidelines are rather strict, and I did not wish to tempt the auditors into disallowing anything that I did.
I was audited several times, and they never disallowed any of the write-offs that I was using.
However next to your signature on the 1040, I have never seen any guidance on how you define what your primary profession is.
"defender of virtue"
"Builder of family values"
Does it really matter? No.
Well, you'd put "securities trader" on line A of Schedule C and that would explain why you're attempting to deduct business expenses.
Quote:
If you have a home office, there is a lengthy set of guidelines for how to handle that home office. How it becomes a tax write-off and exactly how to determine it. You need to read the IRS pub on the subject.
To qualify under the trade-or-business-use-test, you must use part of your home in connection with a trade or business. If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use.
Example.
You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities related to your own investments. You do not make investments as a broker or dealer. So, your activities are not part of a trade or business and you cannot take a deduction for the business use of your home.
Being a full-time trader myself, I've read a lot on this subject (which is an area even many tax professionals are not familiar with), and the fact is, based on court cases throughout the years, it's pretty difficult to have your trading recognized as a legitimate business unless, as I said, you trade very often and for short durations and it's your main source of income. It's best to forget trying to take business deductions for trading unless you're sure you qualify as a trader rather than an investor.
Forest Beekeeper, were your write-offs 1) based on your investing activities, and 2) were they "miscellaneous deductions" that any investor can take (within limits), or were they business deductions entered on Schedule C? Also, what makes you think you were entitled to a home office deduction?
... Forest Beekeeper, were your write-offs 1) based on your investing activities, and 2) were they "miscellaneous deductions" that any investor can take (within limits), or were they business deductions entered on Schedule C?
I fill out a Schedule 'C' every year, a Schedule 'E' and a Schedule 'F' every year. And I have for many years.
My primary career was US Navy submariner, a profession which required that I spend 7 months each year underwater. The submarine was my tax-home.
My profession required that I leave my primary tax-home for 5 months each year, so the 'home' where I kept my stuff, where my Dw and children lived was a tax write-off.
Since my Dw [an accountant] needed something to do, we only bought MFRs [Multi-Family-Residences] instead of Single Family Residences. One at each home-port, so she would be busy managing rental units. By the time that I retired, we had a collection of MFRs. At various home-ports she also operated other forms of businesses [such as a catering service, a laundromat, etc].
And I have kept bees for many years.
So you see, when you ask about my write-offs; I have had a fairly diverse selection of write-offs that I have used over the years to keep my household tax exempt status.
Quote:
... Also, what makes you think you were entitled to a home office deduction?
Sigh, a background which included taking IRS 'VITA' classes for 8 years and having been certified to file folks taxes.
The fact that I have had offices.
I have used offices.
And I have filed taxes for many people in the past some of which did include home offices.
Sigh, a background which included taking IRS 'VITA' classes for 8 years and having been certified to file folks taxes.
The fact that I have had offices.
I have used offices.
And I have filed taxes for many people in the past some of which did include home offices.
The pubs are not difficult to follow along.
The point I'm making is that you weren't entitled to a home office deduction because of your STOCK TRADING, correct? And your other write-offs weren't either, right? I believe that's what the OP was asking about. (Er, although now that I read it again, I suppose it's possible he was referring to some other kind of "investments.")
Traderx, MTM accounting is an election you can choose to make if you qualify for trader status, but you don't have to.
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Smart advice, and as it comes from a bee keeper...
