Tax question (company, income, investments, considered)

[Traderx]

Hmmm, i thought u had to use MTM. I guess it wouldn't make much sense to declare trader status and not use it although I haven't given it much thought lately. It's been so long for me I can't remember exactly what the justifications were to declare at the time. Wash rule was one I know.

[LongArm]

Trader status gets you a bunch of deductions you don't get as an "investor," while MTM accounting basically does away with wash sales, does away with the $3000 per year loss limit, and converts gains/losses to ordinary income. I've never had a reason to elect MTM because 1) wash sales are easy to get around anyway, and 2) the $3k loss limit is of no benefit to me. In fact, anyone who trades for a living and has a loss at the end of the year should seriously consider changing professions, LOL.

[Traderx]

Originally Posted by LongArm

anyone who trades for a living and has a loss at the end of the year should seriously consider changing professions, LOL.

Hehe!..Agreed

[Submariner]

Originally Posted by LongArm

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.

As I read the OP:
"Tax question: 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?"

It was about "managing investments".

Managing Investments is something that I have done for many years.

It does not change your ability to have a home office.

[LongArm]

Originally Posted by forest beekeeper

Managing Investments is something that I have done for many years.

It does not change your ability to have a home office.

You're killin' me, FB.

IF, by "managing investments," he was referring to trading or investing in securities, THAT does not give him the ability to deduct the home office, UNLESS he qualifies for trader status, which he likely doesn't. That's all I'm saying.

Of COURSE he may be able to deduct it for other reasons, other kinds of "investment management," whatever. (You know better than I on that).

[Submariner]

Originally Posted by LongArm

You're killin' me, FB.

IF, by "managing investments," he was referring to trading or investing in securities, THAT does not give him the ability to deduct the home office, UNLESS he qualifies for trader status, which he likely doesn't. That's all I'm saying.

Of COURSE he may be able to deduct it for other reasons, other kinds of "investment management," whatever. (You know better than I on that).

Right

It was not sounding like he was a 'trader' so much as he manages a bunch of investments.

It all depends on what kind of investments are being managed, and if he in fact has an office.

Following the IRS guidelines for an office are not that hard to do. But you need to follow them exactly.

"home offices" were once seen as a flag for the IRS. So many people had offices but refused to file the write-offs on them, wishing to avoid the flag.

Of course I do not know what kinds of investments he is managing; whether they are Schedule 'C', or 'D', or 'E'. or 'F'.

[jimhcom]

OK, how many trades do you have to make to be considered a trader? I average a few hundred per year, although about half are in non taxable accounts.

[jimhcom]

Originally Posted by forest beekeeper

right

it was not sounding like he was a 'trader' so much as he manages a bunch of investments.

It all depends on what kind of investments are being managed, and if he in fact has an office.

Following the irs guidelines for an office are not that hard to do. But you need to follow them exactly.

"home offices" were once seen as a flag for the irs. So many people had offices but refused to file the write-offs on them, wishing to avoid the flag.

Of course i do not know what kinds of investments he is managing; whether they are schedule 'c', or 'd', or 'e'. Or 'f'.

d&e

[Traderx]

Originally Posted by jimhcom

OK, how many trades do you have to make to be considered a trader? I average a few hundred per year, although about half are in non taxable accounts.

From what my accountant and other traders have told me, you need to make trades pretty much everyday. So it's not a quanity figure but a frequency one.

Just to give you some idea, I have trader status and trade a lot less than most though I do trade almost everday. I make 3000-5000 trades a year which is 12-20 a day.

If your a trader you know it. Are you sitting in front of computers from 8am-4pm trading everyday?

A few hundred trades would probably raise red flags I'd think. There's 250 trading days in a year. 300 would only be slightly more than 1 a day. Hard to eat on that level.

From the IRS:

Special rules apply if you are a trader in securities, in the business of buying and selling securities for your own account. To be engaged in business as a trader in securities, you must meet all of the following conditions:

* You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation.

* Your activity must be substantial, and

* You must carry on the activity with continuity and regularity.

The following facts and circumstances should be considered in determining if your activity is a securities trading business:

* Typical holding periods for securities bought and sold.

* The frequency and dollar amount of your trades during the year.

* The extent to which you pursue the activity to produce income for a livelihood, and

* The amount of time you devote to the activity.

[Submariner]

Originally Posted by jimhcom

d&e

Excellent!