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MTM section 475 trader - NIIT taxes are not calculated correctly with Turbo tax

The article on how to deduct home office expense for an MTM trader is incomplete and may result in you paying more taxes that you are supposed to because NIIT need to be adjusted manually.

 

If you find this article headlined:

How do I report my trader activity with (or without) Section 475(f) election in TurboTax?

SOLVED by TurboTax

140Updated December 21, 2021

 

When you find this article on how to deduct your HO expense as a trader, it may seem to solve your problem, however using this method is incomplete.  By modifying the C2 of 8829, it does allow you to deduct your HO expenses in TT as a trader by manually putting in your income, HOWEVER, it does not explain to you that you must ALSO modify 8960 worksheet Line 7 to report ALL of your business expenses and HO deduction as a negative number. 

If you do not make this entry, you are paying NIIT tax on your allowed business expenses which are exempt from those taxes.  (they are not part of income, they are expenses)

 

If any of you are using the Green Trader tax method to move income from 4797 part ii to the Schedule C other income, this resolves the problem much cleaner. The only caveat is you must only move enough to cover all of your expenses and HO office deduction.  If you move more than those amount (i.e. your Schedule C shows a positive number instead of 0) that you will not be paying the proper amount of NIIT taxes.

 

I hope this helps other traders using MTM save on taxes that Turbotax advice appears to miss.

 

It would be nice if TT would handle a trader business better. 

 

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MTM section 475 trader - NIIT taxes are not calculated correctly with Turbo tax

I agree that the TurboTax Help article you referenced should include a notation concerning Form 8960 and will forward that to the Moderators (who, in turn, can forward it to the developers).

 

Ref: https://ttlc.intuit.com/turbotax-support/en-us/help-article/income/report-trader-activity-without-se...

 

Regardless, it has to be understood that taxpayers who have trader status and make a Section 475(f) election and are subject to the NIIT and use TurboTax to prepare their returns has got to be a fairly small universe of taxpayers. 

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2 Replies

MTM section 475 trader - NIIT taxes are not calculated correctly with Turbo tax

I agree that the TurboTax Help article you referenced should include a notation concerning Form 8960 and will forward that to the Moderators (who, in turn, can forward it to the developers).

 

Ref: https://ttlc.intuit.com/turbotax-support/en-us/help-article/income/report-trader-activity-without-se...

 

Regardless, it has to be understood that taxpayers who have trader status and make a Section 475(f) election and are subject to the NIIT and use TurboTax to prepare their returns has got to be a fairly small universe of taxpayers. 

MTM section 475 trader - NIIT taxes are not calculated correctly with Turbo tax

If you have a Solo 401K for your trading business, read this:

Regarding the NIIT deductions; "you must ALSO modify 8960 worksheet Line 7 to report ALL of your business expenses and HO deduction as a negative number. "  I should have mentioned that in addition to reporting your business expenses as a negative number on line 7, you should also be reporting your Solo 401K entries as a negative number there as well as they are exempt from NIIT.

 

Note: This does not apply to a trader who's AGI is under 200K.

 

To summarize:

  • Enter your gain from your trading business on 8960 wks Line 4 as a negative number (Adjustment)
  • Enter your expenses from your business (be sure to include you home based office deduction if you have one) on line 7 as a negative number
  • Enter your Solo 401K deduction on Line 7 as a negative number

Following these steps will give you the proper NIIT calculations by having your trading income reported on schedule C.

 

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