Taxes
Trading's Tricky Tax Issues
03/30/06 - 07:11 AM EST
One more downside: Once you make the election, you're stuck with it. You can't flip-flop each year. You'll need to petition your decision with the IRS. And remember, you're making this election for the 2006 tax year. If you didn't make this election last year, with your 2004 tax return, then you can't mark your trades to market on your 2005 return. But let's first determine if you qualify this treatment.
To Trade or Not to Trade
You may be a trader, for tax purposes, if:- You trade for your own personal account. And you must do the trading yourself. You can't hire someone to do it for you, nor can you trade for someone else. If you have clients or customers, then you're a dealer, and we're not going there today.
- You make your living off your trading. It's not just something you do at lunch or in your spare time.
- You trade to take advantage of market swings. A trader holds securities for a very short period of time, around 30 days.
- You trade based on technical, rather than fundamental, factors.
Shorty Shorts
If you dabble in short positions, pay attention. Only when a short position is closed is there a taxable event. So you report short sales only in the year you cover them. If you are holding an open short position at year-end, you won't owe tax on it.Even though the market was flat last year, you likely will have capital gains and distributions to report.
If you've given up on doing your taxes yourself, be sure to do due diligence on whom you hire.
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