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International Business Machines Corporation Message Board

  • greenco greenco Jan 21, 1998 11:23 AM Flag

    "Trader" - Unlimited tax losses

    A "Trader", as opposed to an "Investor", is not limited to deducting $3,000 per year on their tax return and instead can
    deduct an unlimited amount of "realized" and "unrealized" trading losses against their ordinary income. As an example, if you have
    trading losses of $50,000 and other ordinary income of $150,000 (e.g. from full time employment wages or self-employment income),
    your net gross income is $100,000 as a trader, but it's $147,000 as an investor. As a trader, your taxable income is more than
    $47,000 less than as an investor (considering other haircuts on itemized deductions based on adjusted gross income). If your margin
    tax rates are 40% for federal and state, then your tax savings is approximately $19,000.

    Consider that you may have been holding stocks at December 31, 1997 with "unrealized" losses and you are holding those stocks looking for come back in their stock prices. You might be able to deduct those "unrealized" losses as a trader on your 1997 tax return.

    As Barron's wrote (in their December 8, 1997 article, "Who's a Trader"), "Securities traders, who get a better deal from
    Uncle Sam than mere investors (traders, unlike investors, get unlimited deductions for investment interest and other trading
    expenses) have just been awarded a world-class bonanza: From out of left field, and with remarkably little fanfare, the 1997 Taxpayer
    Relief Act gave traders the option of reporting on a mark-to-market basis-essentially to recognize gains and losses on securities
    held at the end of year as if they were sold on that day-an opportunity for major cuts in their tax bills."

    How to qualify as a "Trader", document that tax position and report it on your tax returns are the key questions and
    concerns. We are tax specialists and are experts in this area. If you are interested in learning more about the rules of being a
    trader, and receiving an initial free consultation from us about whether you qualify, send us an email to
    Please also visit our Website at Taking this
    trader position is complicated and we strongly suggest that you consult with us about all your facts and circumstances before

    Here is an example of a new client we just helped from these stock message boards. We helped them qualify as a trader in
    order to get the above-mentioned trader tax benefits. John Doe (real name is confidential) is a computer engineer working
    full-time at a computer software company. John closely follows trends and developments in the computer markets. John has a
    self-directed Internet trading account with no involvement from a broker. John traded mostly computer stocks 40 times during the year,
    with each trade averaging $15,000 of proceeds. John's sale proceeds that were reported on his calendar year 1997 Form 1099 were
    $600,000. John exploited his knowledge of the computer industry as a computer professional to actively trade computer stocks. He had
    all the tools of a trading professional at home and at work using the Internet. John trades for the short-term, looking for
    quick price swings rather than long-term price appreciation.

    In prior years it was not as easy as it is now to qualify as a trader. Advances in the Internet, PC hardware and software, and on-line stock brokerage firms have made it easier to qualify.

    We apologize to any message board users who feel this message is commercial oriented and that it does not discuss the price of this. We posted the message to add value to traders who may have incurred losses of late (from buying or shorting this stock) and who may be interested in an added value trading benefit.

    Good luck with your IBM trading.

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