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How to Qualify for Day Trader Status

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💫 Short Summary

The video discusses the rise of active day trading during the pandemic, focusing on qualifying for trader status and navigating tax laws. Brian Rivera shares insights on tax reporting for day traders, emphasizing deductible expenses and the importance of maintaining trader status. Meeting IRS criteria, including trading volume and continuity, is crucial for tax purposes. Utilizing entity structures and understanding tax benefits can optimize savings for active day traders. Professional consultation for tax planning is recommended to navigate complex tax implications and maximize savings.

✨ Highlights
📊 Transcript
Increase in Online Money-Making Opportunities During Pandemic.
Robinhood app downloads and day trading volume have significantly increased.
Brian Rivera, managing partner of Trader Tax CPA, shares insights on qualifying for trader status and navigating tax laws for day traders.
Rivera highlights the value his firm provides in helping active day traders with tax reporting requirements and capturing investment expenses.
The video discusses a consultation with a laid-off client transitioning to day trading, focusing on tax strategies and expense management.
Importance of Trader Status for Tax Purposes.
Criteria outlined by the IRS include profiting from daily market movements and maintaining continuity in trading activities.
Introduction of the 'behave test' acronym, emphasizing the significance of business expenses and trading equipment.
Mention of deductible expenses such as data feeds, scanner subscriptions, and brokerage fees for active day traders.
Encouragement to share business expenses, stressing the importance of qualifying for trader status for tax savings and long-term success.
Requirements for day traders by the IRS.
Traders should spend around four hours in the market, including research and analysis.
The IRS expects traders to have the equipment used in their trading activities.
Traders need to execute trades actively to meet volume requirements, with the goal of 720 trades.
Traders should have continuity and regularity in their trading, with at least 75% of available trading days utilized, amounting to around 189 days a year.
Maintaining trader status for tax purposes is crucial for active traders.
Meeting the pattern day trader rule of a $25,000 minimum equity balance is essential.
Some traders may trade offshore or use alternative arrangements to bypass this rule.
Utilizing entity structures can help legitimize the trading business and separate it from personal finances.
Trading in an IRA account does not count towards trader status.
Tax benefits for active day traders.
Business expenses like education, home office, and travel can be deducted for tax purposes.
Mark-to-market accounting and entity integration can lead to additional tax savings.
IRS rewards traders for regularity and continuity in trading.
Seeking professional consultation for tax planning is essential to navigate complex tax implications and maximize savings.