TRADERS ADVOCACY
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Trader & Investment Manager Tax Treatment


Trader tax benefits. 
Traders face challenges when claiming “trader tax status” (business treatment) and related tax benefits. Federal tax rules for trader tax status are vague and IRS agents can be difficult in exams, which are increasingly on the rise.  


Lately, a few states including Arizona and Kentucky have been making life difficult for traders in state tax exams too. In a few cases, Traders Advocacy has intervened for traders at our expense. Small-business traders need us in their corner.


  • Kentucky is attempting to charge a Limited Liability Entity tax on trading proceeds, without allowing a deduction for trading purchases. Some state and local jurisdiction have gross margin taxes, but that is applied on net trading gains. Generally, trading should be exempt all together. Traders Advocacy is helping a Kentucky trader with this issue.

Are lower 60/40 tax rates on futures in jeopardy? 
Tax reform is on the table for the Congressional Super Committee. The basic idea of tax reform is to flatten and simplify the tax code by lowering tax rates and closing tax loopholes. Some in Congress and the media have recently said that lower 60/40 tax rates on futures (Section 1256) are a tax loophole. If tax rates are lowered to the current maximum 60/40 tax rate of 23 percent, it wouldn’t matter much. However, it’s doubtful Democrats would agree to such a low overall top marginal tax rate. Traders Advocacy is defending this tax treatment for futures traders.


Forex traders are using lower 60/40 tax rates too.
The tax code is not clear on whether or not spot forex traders – the majority of retail forex – can elect out of Section 988 (ordinary gain or loss) and into lower 60/40 Section 1256g (foreign currency contracts). Traders Advocacy is working with the IRS on better guidance and permission for this favorable tax treatment. 

  • Forex Quick Link on GreenTraderTax.com site.

Carried-interest tax breaks for investment managers. 
Democrats have proposed repealing carried-interest tax breaks for investment managers since 2007, and Republicans have blocked them, safeguarding this tax treatment. Read why Robert Green believes carried-interest tax treatment is fair.


Most trading gains are exempt from self-employment taxes. 
Only futures traders using an exchange membership for their trading owe self-employment (SE) taxes on their trading gains. SE taxes are the same as payroll taxes on salaries, including FICA and Medicare taxes. Starting in 2013 under the health care reform bill, upper-income taxpayers owe Medicare taxes on investment income, which includes trading gains. We seek to keep trading gains exempt from SE taxes as much as possible.