DaytradeTeam Profitzzz

File As a Trader and Save $509 Per Month!

How would you like to put another $6,117 in your pocket this year instead of paying it to Uncle Sam? While this is a hypothetical figure, I want you to know that as a trader, you have the power to substantially reduce your taxes this year whether you make or lose money.
Tax reduction starts when you understand the Internal Revenue Code, which is actually made up of two tax codes: a tax code for businesses and a tax code for individuals. If you`re running a business, you`re rewarded for your entrepreneurial activities, and encouraged to continue them. If you`re an individual with W-2 income, you`re punished with progressively higher taxes and the elimination of deductible items.
What to do? The answer is very simple. Turn your trading activities into a bona fide business, and a world of deductions, fringe benefits and beneficial tax strategies will open up before you. Picture angels?with trumpets blowing?heralding a new day. Not bad, huh?
Let`s look at a simple example that will show you the benefit of filing your taxes as a trading business instead of as an individual investor.
Common Trader Expenses
Many traders find it is relatively easy to accumulate $15,000 - $25,000 of business expenses each year.
Here`s a list of common expenses:
Telephone (2nd line) $480 Advisory Services, like our QQQQ Swing Trading System $1,200 Seminars $3,500 Travel & Entertainment $2,950 Cable $900 DSL $660 Margin Interest $1,900 Home Office Expense $3,800 Office Equipment $8,840 Total: $24,230
Now, let`s see how those expenses translate into tax savings for two types of people ? those who file as an investor, and those who file as a business owner.
Tax Reduction Comparison(For this example: $100K income, $24,230 expenses, 30% tax bracket)
Filing Status $40,000 Gain $40,000 Loss Investor $1,152 tax savings $3,700 tax deduction Business $7,269 tax savings $64,230 tax deduction
See that? Whether you have a gain or loss, the clear advantage goes to the individual in business. Now, let`s explain some of the assumptions and look a bit closer at the numbers.
First, let`s look at the scenario of filing as an investor: Of the $24,230 in total expenses, an investor could only potentially deduct $6,640. This is because only some expenses can be claimed by investors. But even then, the $6,640 isn`t even fully deductible. It must first overcome a 2% threshold of the adjusted gross income (AGI) before any amount of it is deductible.
In this example, you have $100,000 in W-2 income with a $40,000 trading gain, for a total AGI of $140,000. 2% of $140,000 is $2,800. Subtract the $2,800 from the $6,640 of deductible expenses, and you`re left with $3,840 in deductions. Assuming a 30% tax bracket, you have tax savings of $1,152.
With a $40,000 gain, a Trader pays $6,117 less tax than an Investor
On the other hand, suppose you`re a trader who has set up a business entity for your trading, and you`ve elected the Mark to Market accounting method. Now, your entire $24,230 in business expenses are fully deductible.
Calculated at a 30% tax bracket, you, as a trader, would see tax savings of $7,269. That is an additional $6,117 more in tax savings ($509 per month), simply by filing as a trader, rather than an investor.
With a $40,000 loss, a Trader deducts $60,530 more than an Investor
Now, let`s see what the difference is you have a trading loss of $40,000 for the year.
As an investor, your limitations on the deductible expenses are restricted as before. Also, since you`ve lost money trading, you can`t deduct your margin expense. So, out of $24,230 in expenses, you can only deduct $2,640. With the $40,000 loss, your AGI has dropped from $140,000 to $97,000. With the 2% threshold, your first $1,940 in expenses is not deductible. So you, as an investor, are left with $700 in deductible expenses and a $3,000 capital loss?for total deductions of $3,700.
As a trader, you`re still able to deduct all $24,230 of your business expenses. Also, as a trader who has previously elected Mark to Market, you`re able to deduct your entire $40,000 loss?giving you a total deduction of $64,230. The result is a deduction that is $60,530 larger than if you filed as an investor.
Conclusion: It Makes Sense to Trade as a Business
While these numbers are both hypothetical and vastly simplified, the results bear out consistently for real traders with real trading businesses. In fact, in many ways, we`ve just skimmed the surface of the benefits available to you in your trading business.

*If you would like to learn more about how to properly set-up a trading business, and all of the tax strategies available to you, check out TradersAccounting.com