Dr. Jerry Allison Talks Turkey About Filing Your Tax Return as a Trader, Ep #125
Play • 42 min

Jerry Allison is a CPA who has been practicing accounting for over 30 years.  He also holds a doctorate in business administration and a master's degree in mathematics. In addition to accounting in all types of businesses, he has taught at several universities and colleges, helping students set up and operate businesses efficiently. Dr Allison has also performed research in business strategy, publishing several journal and conference papers, and he specializes in tax preparation and consulting for those trading public securities.  In this episode of How To Trade It, Jerry talks about the importance of understanding how to properly file taxes as a trader. You don’t want to miss it!

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You’ll want to hear this episode, if you are interested in…

  • [00:24] Taxation for traders
  • [00:50] Trading Forex…
  • [06:40] Reasons for a Schedule C
  • [07:14] Two types of LLCs
  • [08:55] Tax impact of losing money while trading
  • [09:46] Trading Stocks & Options…
  • [19:58] Cap Gains & Losses
  • [23:17] Trading Futures…
  • [26:32] Trading Cryptocurrencies…
  • [29:02] Creating a trading business
  • [32:45] Services provided by Traders Account

Forex taxation

Income from trading Forex is reported as regular, ordinary income.  It’s super simple to report.  It looks like income from a W-2 or 1099.  If you want to be able to deduct expenses, you can claim “Trader Status”, if you meet the following special circumstances from the IRS:  Take 700+ trades in a year; trade on 75% or more of the available trading days in a year; and spend 4-6 hours per day in research and/or education.  The IRS is trying to make certain that you are treating “trading” as an actual business.  The downside?  Claiming expenses on a Schedule C, as an individual, increases your audit risk.    

 Limited Liability Companies

The first type is a single member LLC, where there is only one owner.  Income is reported on the Schedule C of the individual’s tax return.  This is useless to set up, if you are a trader.  The second type, and the one recommended for traders, is a partnership, or a multi-member LLC.  In this case, the entire trading piece is moved from the individual tax return, and income is reported on a partnership tax return.  The IRS views this as a legitimate business, or a pass-thru entity, where income is reported on a Schedule E.  

Capital Gains Taxes

There are two kinds of cap gains to consider.  First, you can Short-Term, which refers to anything that you hold for a year or less.  These gains are taxed the same as ordinary income rates…22%, 35%, 37%, etc. tax brackets.  The second type is Long-Term Cap Gains.  They are the income generated by anything that is held for more than a year, but the maximum tax is capped at 20%.  

Traders Accounting Services

  • Consulting
  • Help setting up entities
  • Tax return preparation
  • Bookkeeping services

Connect with Dr. Jerry Allison

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