I have another new client who is a day trader and wow is he good at it! Even though he has another job he makes so much more money as a trader that this ultimately is his primary vocation. The following are a few things I’ve learned in helping this new client with his tax obligations.
1. If you are a day trader who has not elected to mark your portfolio to market accounting method under Internal Revenue Code 475 your expenses are deductible on IRS Form 1040 Schedule C.
2. The most commonly referenced Business Code provided on the Schedule C is 523900. Other financial investment activities (including investment advice) and in my opinion is the most appropriate for a person that meets the definition of “day trader” regardless of the accounting method chosen.
3. Regarding expenses, lodging and meals while away from home at investment seminars are allowable deductions assuming you actually qualify as a day trader under IRC Sec. 274(h)(7) which denies a Sec. 212(l) deduction for (non-business related) “expenses allocable to a convention, seminar, or similar meeting.” However, the Tax Court held that a day trader can deduct the cost of a seminar in securities day trading and related travel expenses under IRC Sec. 162. Read More
Assuming that you, unlike me, actually have an end purpose to your research other than just learning new stuff; today we are going to look at some avenues to put this information to use.
Obviously, the most basic reason for someone in our profession to do in-depth research is to complete the tax return. But that isn’t the only thing we need to do with our material. If you are taking a position from one of the lower standards in Part 2 of our series you may need to cite your research material on an IRS Form 8275, Disclosure Statement. This is the IRS form to use when you need to explain why you did something on a return that may not make sense to someone without the details. You need to lay out you case for the deviation and then include your citations for the authority to do so.
That isn’t your only use for the research you have done. If you are assisting a client with an IRS letter or audit you may need to quote your citations. Make sure you use IRS titles for the citations. Instead of putting IRC XXX.XX(x) put Cod. Sec. XXX.XX(x). When using citations you should drill down to the most relevant paragraph in your correspondence as well. Instead of putting Cod. Sec. 162, which is approximately 14 pages long, use Cod. Sec. 162(g)(1).
Some of the things you will use as citations frequently should be identified as follows: Read More