Go to Jeff Salisbury LWGate Home Page.From: "Gene Ricci" <genr@swbell.net>
Subject: Re: [CANSLIM] IRS rules for traders (was dumb question...)
Date: Wed, 16 Jul 2003 07:57:15 -0500
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This is a multi-part message in MIME format. - ------=_NextPart_000_0336_01C34B6F.DF374420 Content-Type: text/plain; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable Chuck, thanks for the added information. Gene ----- Original Message -----=20 From: Charles & Lois Layne=20 To: canslim@lists.xmission.com=20 Sent: Wednesday, July 16, 2003 6:47 AM Subject: [CANSLIM] IRS rules for traders (was dumb question...) ----- Original Message ----- > > I'm not an accountant (nor do I wish to play one), but it seems = to me > that if the IRS agrees to categorize you as being an independent = investor, all > your investing activities can be deducted as business expenses. > Actually, the specification is not "independent investor." There are = rules for "traders in securities," and they are rather stringent. I am = quoting from the current IRS publication 550: "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 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. 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. The amount of time = you devote to the activity. If your trading activities are not a business, you are considered an investor, and not a trader. It does not matter whether you call = yourself a trader or a "day trader."" I have found additional information at various websites for day = traders. Sorry, I do not have the URLs anymore since this was a few years ago. Search for day trading, something should come up. Those sites = emphasize the stringency of the IRS rules which is essentially that in order to file = stock activity using sole proprietor forms instead of capital gains forms, = you pretty much have to be a day trader making a living from your = activity. Anyone using CANSLIM principles must be regarded as an investor, since = the holding period is too long (ie, seeking profit from capital = appreciation). Pub 550 does note that one can be a trader and also have other = securities for investment, but the special rules for traders would not apply to = the securities held for investment. You must keep detailed records to distinguish the securities (the recommendation is even maintaining = separate brokerage accounts). If you meet the IRS criteria to be a trader in securities, then there = are tax advantages. Since you report gains and losses as a business, you = do not have to worry about the wash rule. However, you must make a "Mark-to-Market" accounting method election (also covered in pub 550) = for your trading business. You also report expenses related to your = business (such as was being discussed in the forum) on schedule C, Profit or = Loss from Business, instead of schedule A. Even though I began trading short term more frequently a few years = back, I determined that I do not meet the IRS rules. First, I cannot claim at = this point that I am making a living from the trades. Second, although I = prefer to buy and sell the same day, some of my holding periods end up being = a few weeks or more. You really can't get by with much more than an = overnight holding period to qualify as a trader in security per IRS rules. So... even if some of you out there are really making a living from = your investments, you must still report them as capital gains (or losses) = and must account for investment related expenses as an itemized deduction. Chuck Layne - -To subscribe/unsubscribe, email "majordomo@xmission.com" -In the email body, write "subscribe canslim" or -"unsubscribe canslim". Do not use quotes in your email. - ------=_NextPart_000_0336_01C34B6F.DF374420 Content-Type: text/html; charset="iso-8859-1" Content-Transfer-Encoding: quoted-printable <!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN"> <HTML><HEAD> <META http-equiv=3DContent-Type content=3D"text/html; = charset=3Diso-8859-1"> <META content=3D"MSHTML 6.00.2800.1106" name=3DGENERATOR> <STYLE></STYLE> </HEAD> <BODY bgColor=3D#ffffff> <DIV><FONT face=3D"Comic Sans MS">Chuck, thanks for the added=20 information.</FONT></DIV> <DIV><FONT face=3D"Comic Sans MS"></FONT> </DIV> <DIV><FONT face=3D"Comic Sans MS">Gene</FONT></DIV> <BLOCKQUOTE=20 style=3D"PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; = BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px"> <DIV style=3D"FONT: 10pt arial">----- Original Message ----- </DIV> <DIV=20 style=3D"BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: = black"><B>From:</B>=20 <A title=3Dlelayne@earthlink.net = href=3D"mailto:lelayne@earthlink.net">Charles=20 & Lois Layne</A> </DIV> <DIV style=3D"FONT: 10pt arial"><B>To:</B> <A = title=3Dcanslim@lists.xmission.com=20 = href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>= </DIV> <DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Wednesday, July 16, 2003 = 6:47=20 AM</DIV> <DIV style=3D"FONT: 10pt arial"><B>Subject:</B> [CANSLIM] IRS rules = for traders=20 (was dumb question...)</DIV> <DIV><BR></DIV><BR>----- Original Message=20 -----<BR>><BR>> I'm not an = accountant (nor=20 do I wish to play one), but it seems to me<BR>> that if the IRS = agrees to=20 categorize you as being an independent investor,<BR>all<BR>> your = investing=20 activities can be deducted as business = expenses.<BR>><BR><BR>Actually, the=20 specification is not "independent investor." There are = rules<BR>for=20 "traders in securities," and they are rather stringent. I = am=20 quoting<BR>from the current IRS publication 550:<BR><BR>"Special rules = apply=20 if you are a trader in securities in the business of<BR>buying and = selling=20 securities for your own account. To be engaged in<BR>business as a = trader in=20 securities, you must meet all the = following<BR>conditions.<BR><BR> You=20 must seek to profit from daily market movements in the prices = of<BR>securities=20 and not from dividends, interest, or capital appreciation. = Your<BR>activity=20 must be substantial. You must carry on the activity with = continuity<BR>and=20 regularity.<BR><BR>The following facts and circumstances should be = considered=20 in determining if<BR>your activity is a securities trading=20 business.<BR>Typical holding periods for securities bought and sold. = The=20 frequency and<BR>dollar amount of your trades during the year. The = extent to=20 which you pursue<BR>the activity to produce income for a livelihood. = The=20 amount of time you<BR>devote to the activity.<BR><BR>If your trading=20 activities are not a business, you are considered an<BR>investor, and = not a=20 trader. It does not matter whether you call yourself a<BR>trader or a = "day=20 trader.""<BR><BR>I have found additional information at various = websites for=20 day traders.<BR>Sorry, I do not have the URLs anymore since this was a = few=20 years ago.<BR>Search for day trading, something should come up. = Those=20 sites emphasize the<BR>stringency of the IRS rules which is = essentially that=20 in order to file stock<BR>activity using sole proprietor forms instead = of=20 capital gains forms, you<BR>pretty much have to be a day trader making = a=20 living from your activity.<BR>Anyone using CANSLIM principles must be = regarded=20 as an investor, since the<BR>holding period is too long (ie, seeking = profit=20 from capital appreciation).<BR>Pub 550 does note that one can be a = trader and=20 also have other securities<BR>for investment, but the special rules = for=20 traders would not apply to the<BR>securities held for = investment. You=20 must keep detailed records to<BR>distinguish the securities (the=20 recommendation is even maintaining separate<BR>brokerage = accounts).<BR><BR>If=20 you meet the IRS criteria to be a trader in securities, then there = are<BR>tax=20 advantages. Since you report gains and losses as a business, you = do=20 not<BR>have to worry about the wash rule. However, you must make = a<BR>"Mark-to-Market" accounting method election (also covered in pub = 550)=20 for<BR>your trading business. You also report expenses related = to your=20 business<BR>(such as was being discussed in the forum) on schedule C, = Profit=20 or Loss<BR>from Business, instead of schedule A.<BR><BR>Even though I = began=20 trading short term more frequently a few years back, I<BR>determined = that I do=20 not meet the IRS rules. First, I cannot claim at this<BR>point = that I am=20 making a living from the trades. Second, although I prefer<BR>to = buy and=20 sell the same day, some of my holding periods end up being a = few<BR>weeks or=20 more. You really can't get by with much more than an=20 overnight<BR>holding period to qualify as a trader in security per IRS = rules.<BR><BR>So... even if some of you out there are really making a = living=20 from your<BR>investments, you must still report them as capital gains = (or=20 losses) and<BR>must account for investment related expenses as an = itemized=20 deduction.<BR><BR><BR>Chuck Layne<BR><BR><BR><BR><BR>-<BR>-To=20 subscribe/unsubscribe, email "<A=20 = href=3D"mailto:majordomo@xmission.com">majordomo@xmission.com</A>"<BR>-In= the=20 email body, write "subscribe canslim" or<BR>-"unsubscribe = canslim". Do=20 not use quotes in your email.<BR></BLOCKQUOTE></BODY></HTML> - ------=_NextPart_000_0336_01C34B6F.DF374420-- - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email.
Next Article (by Date): RE: Trailing stops and taking profits (was: RE: [CANSLIM] AAII letter to the editor) "Katherine Malm"
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