Everywhere I read, it says to treat this as a business. So I’m trying to put all my ducks in a row before I go live (I’m still demo trading). My question is this: How are your profits taxed? Do you report it as income from a business, is it capital gains like stocks? Do the brokers send out 1099’s at the end of the year? And when does it count as profit: when you earn it in your broker account, or when you pull it out? I just want to do things right from the start. Thanking everyone in advance for their help and input.
Look for IRC 1256 or 1257 one of those I think. Its about 20%. You pay taxes on the withdrawal. Not all sends 1099’s out Oanda sends one to the IRS for you(bastards). You are taxed now if you set up a S-corp trade under its name pay yourself $500 a year. Make up a contract where your s-corp pays you a per diem or expenses. So you or the S-corp isnt taxed on that. The contact needs to point out you are a trader. Then you can write off you mortgage well up to 50% of it. Your computer, Internet, cable(because you need up to-date info Right!). Basically all the bills for your home. Your profit is what you withdraw after the original investment. So if you drop 10K and pull out 11K your taxed on 1K. If you go 988 its because you have a loss that year. Do enough trades so you qualify as a trader. No specific number but its about 150 In and out trades. Taxes on whats left over is about 20%. When compared to 42% if your were a trader. The add on a 10-15% self-employed tax. Taxes are the least of your worries. Make the money first. Then after you make a killing(hopefully you do) get a CPA to find everything for you. I have been profitable for 2 years and I would say after I do my write offs my taxes are about under 10%. im a real estate agent so I get to write off everything else also. Also filing as a trader you might get a call from the IRS and they just want to see a log. Just D/L from your broker and send it to them they wont call you again. So great record keeping is a must. Also you cannot claim any benefits for the time your trading. Dole/welfare/ un-employment Etc.