March 8, 2011
Income Tax for Day Traders, Trader Tax Commodities vs Securities
– Trader Tax
o Day traders need to be aware that the market they trade has a BIG impact on the tax you pay to the IRS here in the US
o Two main classes:
§ Securities: Stocks, FOREX, anything purchased at the CURRENT cash price (not the future)
· Taxes: Long term capital gains (profit is taken less than 12mos of the position)
§ Commodities: include all FUTURES markets
· Taxes: we have the 60/40 split
o 60% of the profit is LONG term capital gains (your tax bracket)
o 40% of the profit is SHORT term capital gains (15%more)
§ The big difference between Stocks/Forex and Futures is they are in two classes
§ Federal regulations stipulate that profits and losses derived from futures transactions are not considered entirely either long term or short term with respect to their capital gains status.
§ Instead, they are considered as a hybrid mixture of the two.
§ 60% of the profit is taxed at the long-term capital gains rate.
§ 40% of the profit is taxed at the short-term capital gains rate.
§ Consider the following example of two investors trading the S&P 500. One uses the SPDR Exchange Traded Fund and the other uses the E-mini SP 500 Futures.
§ Both investors made $100,000 in gross profit.
§ Assume both traders are in the marginal income tax bracket of 35%
§ Both investors made $100,000 in gross profit.
§ Assume both traders are in the marginal income tax bracket of 35%
§ Futures traders have favorable tax consequences for short term traders, since Futures are taxed 60/40, which means that 60% of the gain is taxed at the maximum rate of 15% (similar to long-term gains) and the other 40% is taxed at a maximum rate of 35% as ordinary income.
Securities positions held for less than 12 months are considered short term gains and taxed at 35%. Of course everyone’s tax situation is different and should consult a licensed accountant for their specific situation.
Securities positions held for less than 12 months are considered short term gains and taxed at 35%. Of course everyone’s tax situation is different and should consult a licensed accountant for their specific situation.
o IRA with your tax Benefits
§ Contribute pre-tax
§ And then trade your account pre tax
§ You’re taxes on the income when you take your profit
– New member, where do you go from here?
o Watch the entire beginner’s course
o Move to the Quick Start guide in the Advanced Course
o Watch the Fast track video in the advanced next
o Then begin to trade the FT Method with us
– Can we use the Dollar Index patterns? Even though we don’t trade it?
– Wave patterns on the dollar = wave patterns on the other markets we trade.
– BMT: Its your profit target, not your entry
– Average True Range Charts
o 3min chart
o Template: ATR
o 5 days of market data
– Different ways to enter the market with the Fast Track
o Buy Stop = turns into a market order when touched
§ (always get into the trade, but may include slippage)
o Buy Stop LIMIT = just like a buy stop, but will ONLY fill you at the requested price
§ (safest way, sometimes you might miss an entry)
– I always define the OPEN of the day using the 4range chart. We use 24/5 charts, so we see 24 hours a day, all week long.
– We don’t use the PIT open/close, we open @ 12am EST midnight
– Use your fastest timeframe to show you the open at its most accurate level.
– BMT is always different on your charts
