You know that most traders enjoy a six or seven-figure income, no boss and hour work week.

But a big truth about day traders is that they enjoy tax benefits as well. Day traders can keep a large part of their trading gains given the advantage of their tax situation. Traders incur a lot of expenses. They subscribe to various newsletters, pay trading commissions, buy computer equipment, hire accountants, hold meetings with other traders to discuss ideas, pay for Internet connection and hire lawyers.

Uncle Sam recognizes that.

You just have to keep a record of all the expenses as you incur them. You can use a spreadsheet, notebook or a personal finance software for this purpose. Here are the five tips for day traders to reduce their taxes.

List of Class C motorhomes for sale

There is a blurred distinction between the definitions of trader and investor. In order to enjoy the tax benefits of a trader, you have to qualify as a trader first.

IRS Wash Sale Rule | Guide for Active Traders

Even people who trade times a week are considered as investors by IRS. IRS says you are a trader only if you buy and sell stocks almost every working day.

You have to have a consistent pattern of making a number of trades. Your goal should be to make money from the short-term market swings, instead of long-term appreciation or dividend income. In case you earn more at another job, or simply have another job, make sure to consult with a tax professional who is expert in Traders Accounting. If you have successfully qualified as a trader, you can deduct a number of expenses that an investor cannot.

Job Interview Online Practice Tests

You can deduct all you trading related expenses on Schedule C. As a trader, you can write off all your trading losses. Moreover, Schedule C deductions reduce your adjusted gross income, and now you can deduct your personal exemptions and take advantage of other tax benefits. Plus you can deduct your margin account interest on Schedule C. Moreover, you are not required to pay self-employment tax on your profits as capital gains are exempted.

Pretty good deal, eh? Normally, IRS allows you to write off the losses when you sell a stock at a loss.

So, what can you do? It works something like this.

Though you still hold all those stocks, you book losses and gains imaginary as of that trading day just for tax purpose. You start the new year with absolutely zero unrealized gains or losses as if you have repurchased all the stocks you pretended to sell.

It has another benefit as well. But you, as a market-to-market trader, can write off any amount of losses. Did I tell you that you can be a trader and investor both at the same time? Yes, you can get the best of both worlds.

To enjoy those benefits, you have to clarify your investment holdings on records the day you buy them. IRS requires you to keep trading and investing stocks in separate brokerage accounts, especially if you have invested and traded in the same stock.

When itemizing your tax deductions, you, as a trader, can also deduct state income taxes on your interest income which is exempt from the federal income tax. All the 50 states have different rules for taxing investment income.

Day Trading , Investment , taxes. Mark to Market Trading!! And then the broker declares the account as a Pattern Day Trader!! From what I have been able to determine as far as the IRS is concerned: They must be notified the previous tax year by filing what appears to be an extremely complicated IRS Form!!

My intent is to avoid the wash sale rule and the extreme complications, limitations and taxation that rule places on my day to day trading!!

A prompt reply would be appreciated!!