Forex
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07-29-2008, 01:12 AM
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How do I claim trader tax status and prepare my tax returns?
Trader tax status is NOTelected with the IRS; rather you claim it on your own.
Assess your trader tax status before or after year-end. Since it’s based on facts and circumstances, after year-end may be safer. If you qualify for trader tax status, and have not formed a separate legal entity, then you are classified as a “sole proprietor”or “unincorporated business.”Report your trading business expenses on Form 1040 Schedule C (Profit or Loss from Business). Currency futures (IRC 1256) trading gains and losses are reported on Form 6781. Forex trading gains and losses are reported on Form 1040, line 21 Other Income(Loss), unless you elect out of IRC 988 for IRC 1256. Important GreenTraderTax strategy. Transfer business trading gains to Schedule C, to unlock home-office deductions and IRC 179 depreciation; but do not show a profit on Schedule C (it could invite IRS questions about SE tax). It’s important to attach a good tax return footnote explaining yourtrader tax status and this special tax treatment on your tax return. You can even amend prior year tax returns to claim trader tax status.      
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