CLAIMING DAY-TRADING LOSSES ON SCH C? IRS AUDIT RED FLAG

Those who trade in stocks and securities have significant tax advantages compared with investors. The expenses of traders are fully deductible and traders’ profits are exempt from self-employment tax. Losses of traders who make a special section 475(f) election are fully deductible and aren’t subject to the $3,000 cap on capital losses. And there are other tax benefits.

But to qualify as a trader, you must buy and sell securities frequently and look to make money on short-term swings in prices. And the trading activities must be continuous.

The IRS knows that many filers who report trading losses or expenses on Schedule C are actually investors, who profit mainly on long-term appreciation and dividends, hold their securities for longer periods and sell much less often than traders, and can only report their expenses as a miscellaneous itemized deduction on Schedule A, subject to an offset of 2% of adjusted gross income.

So the IRS is pulling returns and checking to see that the taxpayer meets all of the rules to qualify as a bona fide trader.

Most importantly, if you believe you may have trouble paying your tax bill, contact Advance Tax Relief LLC immediately. In many cases, there are steps we can take to help ease the burden or settle the tax debt for a small fraction of what is owed .

We advise also that you file your tax returns even if you are unable to pay to help avoid possible additional penalties.

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