What kind of expenses One can deduct on Sch C as Trader (with TTS)?

[sam992116]

I am thinking of using Trader Tax Return this year. I no other source of income other than trading or have my own health insurance (no pre tax deduction of premiums yet at any where either employer or via someone else).

My understanding  is there isn’t a tax election for claiming TTS. — it’s determined based on facts and assessed at year-end (such as Volume, Frequency and Holding period of trades).

List Trader as profession and Just fill in Sch C  and there is code on Sch C (Line B) and I looked up it is 523110 (I think this more of appropriate code for standalone self Traders ? Or there is any thing else one needs to do to claim TTS?

Business Expenses on Schedule C  show up as losses and my understanding is they are an above-the-line deduction from gross trading income income? There are no revenue of Sch C for traders as their profits goes to other forms (Sch D for capital gains and Sch B for interest/dividends) and only expenses/deductions goes on Sch C?

What kind of expenses a TRADER can claim as expenses on Sch. C as business expense e.g(please say yes or no on each)

subscription fees,

market data fees,

margin interest,

equipment like computers

Books or education courses related to trading

Things I am NOT sure

Home office deduction e.g if your office and office bathroom is 400 Sq ft in 2000 Sq ft home

then proportion rate size of your office to your total home size (e.g 20% of mortgage, property tax)

What is deduction possibility for Utilities such as Gas, electricity, home insurance and internet and even phone) and what should be rate. Same as office size like 20% in my earlier example?

These days all financial institution require phone as 2 factor , can phone and phone bill be deducted as expense and if yes what proportion? 50% or 20% of total cost?

Can one deduct Health care and dental Care Insurance premium on Sch C?

Thanks

[sam992116]

Any one?

[GeorgeM777]

Yes, as to subscription fees, market data fees, equipment like computers, books or education courses related to trading.  Margin interest falls into a different category.  Margin interest, that is, money that you borrow to purchase taxable investments, is deductible provided you itemize your deductions.  And there are limitations to deducting margin interest in that the deduction cannot exceed your net investment income.  

Your expenses associated with your trading business are reported on Schedule C, Profit or Loss From Business.  However, you will have no income to add to Schedule C because your trading income is all characterized as capital gain or capital loss income (this assumes you have not made the mark to market election under Section 475(f) of the IRC).  Capital gains/losses are still reported on Form 8949, or Schedule D.  Thus, you have no "earned income" as that term is defined under the IRC.

Because you have no income to report on Schedule C, you are not eligible for the home office deduction.  The home office deduction is only available if you have net income from your business.  However, your home office expenses can be carried over to the next year.

Health insurance deductions are not reported on Schedule C.  Self-employed health insurance is an adjustment to income and is reported on Schedule 1 to the Form 1040.   The deduction cannot exceed the earned income you collect from your business.   As a trader (who has not elected mark to market) you will have no earned income.  Rather, as noted herein, your gains/losses from your trading business are characterized as capital gains/capital losses. Thus, with no earned income from your business, you will not be able to deduct your self-employed health insurance.  

@sam992116 

[sam992116]

Where in TT interview should I enter computer purchase for trading? Is there a $$ limit?

Does Audio equipment (hands free audio headphone for trading education) count as deduction?

For hardware purchase there are 2 deduction, One is actual deduction and 2nd is depreciation (I think that one is section 179). Does TurboTax automatically fills out 179 form? If I a filling out on my own how do I link to sch C or some other 179 related items coming from K1? Right now I don't see any form 179 in Forms modes?

On Sch C, Line 25 is Utilities as Business expense. What kind of Utility expense will go on Sch C line 25 vs Home office deduction (form 8829)?

I don't any income on Form C this year. Technically I can still fill out Form 8829 (Home office deduction) to carry over those expense next year as situation may change? Worth it or may be?

[sam992116]

Anyone?

Where do expenses listed on Sch C flow to? Do they directly go to 1040 (which line) or via some other form?

Where do Home Office 8829 Expenses go in case they are allowed or carryover to next year (in case not allowed this year? Which form for either case?

Where do one deduct either TurboTax software expense or Tax preparation fees (in case you hired someone, Turbotax do offer Live Tax advice service)? Sch A or can it be on Sch C (if have a business)?

[VolvoGirl]

Income and Expenses on Schedule C go to Schedule C.  Then the Net Profit or loss goes to 1040 Schedule 1 line 3 which flows to 1040 line 8.

Some expenses, such as home office or section 179 depreciation can only be used to reduce your schedule C taxable income to zero, and not to create a loss. Excess deductions for these carry over to the next year. And you have to answer yes to both questions about exclusive and regular use, not just one. The area of your home office must be used regularly and exclusively for business to deduct it.

Tax preparation fees are no longer deductible on Schedule A from 2018 to 2025.
https://ttlc.intuit.com/community/credits-and-deductions/help/can-i-claim-tax-prep-fees-as-a-deducti...

But when it was deductible it wasn't worth even putting in. It is a Misc Deduction and only the amount OVER 2% of your AGI is deductible. And then all your deductions have to be more than the Standard Deduction to give you any benefit. You can only deduct the actual fees not the extra Refund Processing Service charge you paid if you selected the option to have the fees deducted from your federal refund.

You might be able to deduct tax prep on Schedule C for Business.  

[VolvoGirl]

Here is some IRS reading material……
IRS information on Self Employment
https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center

1040 Schedule C Instructions
https://www.irs.gov/pub/irs-pdf/i1040sc.pdf

Publication 535 Business Expenses
https://www.irs.gov/pub/irs-pdf/p535.pdf

[sam992116]

Thank you so much VolveGirl.

Sch C is made for all business owners so need to find out where our expenses fit in.

On Sch, very first question is Is this activity a qualified trade or business under Section 199 A?

(my business is Trading without 475 election).  I assume answer is yes?

In Turbo Tax Home Office Deduction (8829)

It is first asking me expenses for entire home then expenses for home office. My understanding is Turbotax use percentage of sq. ft to automatically approximate home office expneses.

Q: Under Home office Interview, I should enter same amount what I entered for home expenses?

[sam992116]

Any one?

[sam992116]

I have some passive losses carry over from K1.

TurboTax Sch C interview asking:

I have unused  section 179 expenses from 2021

I have passive activity losses carryover from 2021

I have at risk losses carry over from 2021

I assume these question are directly related to my trading not K1 related and I started this business last year. So answer is NO to all?

[Doony]

I currently list my profession as an investor. Not a trader, do not currently claim Trader Tax Status.

Gains and losses on Schedule D. This is my primary income.

I have not written off expenses on Schedule C because I fear (a) it looks weird (b) I will incur social security tax.

You think it is OK to list gains on Schedule D and write off business expenses on Schedule C? Or will this catch the eye of IRS and potentially put me on hook for self employment tax?

Please note I take standard deduction.

[RobertB4444]

Your expenses can't go on schedule C because you don't have the type of business that allows it.  

There wouldn't be any self-employment tax because you wouldn't have any income there.  In order to be able to put your investment expenses on schedule C with your income on schedule D you need to be a trader.

You should consult an attorney in your area to go about structuring your investment business to allow you to deduct expenses.  There are a variety of options that would let you do exactly what you want to do.  Once that structure is in place you will be all set.

@Doony 

[Doony]

Hello. Thank you very much for your reply.

If I was a trader--and not an investor--I believe my trading income would go on Schedule C, not Schedule D. As such, I would incur a self employment tax, which I am currently avoiding.

Does this sound correct to you?

[Doony]

@RobertB4444 

Hello. Thank you very much for your reply.

If I was a trader--and not an investor--I believe my trading income would go on Schedule C, not Schedule D. As such, I would incur a self employment tax, which I am currently avoiding.

Does this sound correct to you?

[RobertB4444]

No.  Gains and losses from selling securities aren't subject to self-employment tax.  Commissions and other payments received would be.

Here's the IRS publication on that.

@Doony