How to Reap More Benefits as a Trader in the US
So you're a new new securities trader or considering to become one. If you think that being a trader is simply making your trades, reporting your income, and selecting your accounting method, think again. You have probably not heard about the trader tax status.
Performing the above routine may not exactly make u full-blown trader. Yes you may buy, sell and profit in securities, futures and foreign exchange, but unless you do so in such a way as to qualify for "trader in securities" status with the Internal Revenue Service (IRS), come tax time, you won't be enjoying the numerous tax advantages reserved exclusively for traders.
The current confusion over trader status lies in the definition (or better yet, lack of it) as to what constitutes a securities trader in the perspective of the IRS. In its effort to separate true securities traders from the greater herd of hobbyists and investors, the IRS has released a general set of guidelines.
To qualify for trader status:
· One must seek to profit from daily market movements in the prices of securities and not from dividends, interest or capital appreciation.
· One's activity must be substantial.
· One must carry on the activity with continuity and regularity.
To help determine if one meets these three tests, the IRS considers these qualifiers:
· Typical holding periods for securities bought and sold
· Frequency and dollar amount of trades during the year
· Extent to which one pursue trading to produce income for a livelihood
· Amount of time one devotes to the activity
Obviously, these guidelines has a number of trap doors through which the unsuspecting trader might fall at any time. For instance, what exactly does "substantial" activity mean? Or "continuity and regularity?"
At present, the IRS has left further description in the mercy of the tax court's prerogative, whose rulings tend to uphold the denial of trader status without shedding much light on how citizens might qualify for trader status in the first place. Court rulings on trader status could be traced back at least six decades. So it is important to be well-verse with these court rulings and IRS standards to gain the maximum benefit a trader should have.
About the Author: The Author is also the Content Provider for Track and Field, Notting Hill and Florida Fishing.
More articles by arcel
Print Article | Download PDF | 7 views | Aug 20 2008
|
|
