EDUCATION CENTER
GTT RESOURCES: TRADER TYPES: PART TIME

Part-time traders may qualify for trader tax status.

However, if you don’t trade all day, every day, be ready for a fight from the IRS.
If you have another job or business activity besides your trading business, you should be aware that the IRS might challenge your trader tax status in a future tax audit.

Recently, the IRS has started to examine more traders (it has increased the number of audits across the board). The IRS has a new blessing from Congress to get tough on tax cheats, and Congress needs new revenue to balance budget deficits.

Based on our experience with the IRS examining tax exams, we have noticed a new, disturbing trend from the IRS: It is challenging "part-time traders" and "money-losing traders." Click here to read about "money-losing traders."

Chen vs. IRS - an important new case.
Chen was a part time and part year trader and he lost his case for trader tax status. Learn how to win yours! Read about the Chen case in Green's new book, The Tax Guide for Traders.

Here is another recent article we wrote about part time traders and the Chen case.
"TRADER VS. INVESTOR STATUS--RESPONDING TO IRS POSITIONS"
Click here to read the entire article.

If you are a part-time trader, it is imperative that you read Green's new book, The Tax Guide for Traders. In this book we cover the following on part-time traders: the detailed rules for how a part-time trader can qualify for trader tax status; how the IRS looks upon part-time traders; tips for dealing with the IRS and much more.

For example:
Let's say that you had a fulltime job in California, working 9 to 5, Monday through Friday. You traded almost every morning before going to work, and you managed your trading business at nights and on weekends. You elected mark-to-market accounting, assuming you would qualify for trader tax status.

You incurred significant trading losses. You filed your tax returns assuming you qualified for trader tax status – i.e., you thought you were entitled to report your trading business expenses on Schedule C (Profit or Loss from Business) and your trading losses on Form 4797 (Sale of Business Property – Part II Ordinary Gain or Loss). Your ordinary business losses (Schedule C and Form 4797) contributed to a large net operating loss (NOL). You carried back your NOL on a Form 1045 tax return and expected a large refund.

Instead of receiving a NOL refund, however, you receive a tax notice from the IRS asking questions about your trader tax status. The IRS reviews your Form 1045 NOL refund claim tax return closely (as is the general rule, since the IRS is sour grapes about paying a large NOL refund check). The IRS sees you have a job, or another business, and they figure that since you lost money in trading, you obviously had to have paid your bills from monies earned in your job or other activity (or from savings). The IRS then makes an unreasonable leap in logic, based on the part-time trader and/or hobby-loss rules: Your trading activity is not a business. The IRS puts the pressure on you to prove to them that you are entitled to use business tax treatment for your trading business. You must prove either that you qualify as a trader and/or the hobby loss rules don't apply. It is likely that only the very best trader tax experts can help you at this point. Before you let it get that far, we suggest you read our above guide and consult with us.

If you have any questions, e-mail info@greencompany.com or call us.

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