Re: [CANSLIM] Deduction Subject to 2% Limit

From: "Charles & Lois Layne" <lelayne@earthlink.net>
Subject: Re: [CANSLIM] Deduction Subject to 2% Limit
Date: Wed, 23 Jul 2003 21:42:21 -0400

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- ----- Original Message -----

> The use of Schedule C for trading without a letter from the IRS
> certifying you as a trader incurs a high risk of an audit where
> all expenses allowable will be moved to Sch A.  The rules for
> being a trader essentially say a consistent pattern of trading
> and trading for short term gains.  Stock that are held for as
> long as a month will disqualify as a trader.  Traders MUST have
> substantially all of theire income from trading.
>

I echo what Robert writes based upon my own research [and what can be
gleaned from the sketchy tax code].  I get the feeling that the general
consensus is that trades beyond overnight (swing trading) begins to push the
envelope.  A trader in securities, as defined by the IRS, is one seeking to
profit from the daily market movement of prices, not capital gains.  One
clear example would be someone trading and trying to profit from the price
spread of a security (bid & ask - a bit more difficult since the shift to
decimal trading).  I get the impression that Robert is even a bit liberal
saying "short term gains," since that could be construed as a capital gain,
not the daily market movement of prices.

All this is further reinforced by the Mark to Market (MTM) election that a
trader in securities can make.  The rules of this accounting election
specify that the value of securities held on the last trading day of the
year are treated as if they had been sold in that year.  It makes sense
because a trader in security, as defined by the IRS and subsequent court
cases, is not holding positions overnight (exception: overnight swing
trading) and would thus not have a position at the end of the last trading
day of the year.

The bottom line for CANSLIM investors appears to be this: anyone using
CANSLIM strategy is seeking to profit from capital appreciation of the stock
by holding a position for a moderate period of time - certainly not day
trading.  Sched C is for reporting the profit and loss of sole
proprietorhips, not for reporting costs related to investment income.
Sorry.

Further information may be gleaned from the following sites:

http://www.edaytradertax.com/trader.htm
http://www.taxesfortraders.com/cgi/pp/taxinfo.htm


Chuck Layne




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