Day trading, taxes, how exactly do you do it? Everyone loves talking about making big Lamborghini money by trading only one hour a day and anywhere in the world, but not a lot of people talk about how you can keep that money legally, of course, so you don't get in trouble with the IRS coming after your Every single April, before we start here, is a mandatory disclaimer. I am NOT a CPA nor a financial adviser. I don't know anything about taxes. Everyone's tax situation would be grossly different.

It's your own responsibility to ensure all your taxes are filed correctly and legally by a tax professional. I have no idea what I'm talking about, I'm, not even American. I know what you must be thinking right now: traitor, you're, Canadian. How would you know anything about dealing with the IRS and paying taxes here in the United States? Actually, I did spend a good 5 to 6 years studying and working in the US.

So I know a thing or two about parting, with my precious Benjamins every single April, and let me tell you dealing with dual taxes with the CRA here in Canada, and also the IRS in the US was not fun. I know I already made a day trading taxes, video for Canadian traders two weeks ago. I want to be fair to my American viewers as well. They deserve to have a fair share of bad jokes too.

So in this video we'll be talking about day trading taxes in the United States, what kind of status you qualify for either as an ordinary investor or trader tax status, and also The Associated tax breaks? You can utilize in order to save some money legally, of course, and all these terrible jokes, I mean they. Trade in taxes. Research really took me a lot of time to prepare. So I really appreciate it if you could drop a like at the bottom of this video.

So when we're looking at stock market taxes in the u.s. in general, either as an ordinary investor or trader, there's two distinct tax rates to know the long-term tax rate and also the short-term tax rate. Let's say you made $ 100,000 from the stock market and all these are from positions that you've held for longer than a year. So basically, oh, these would not be from day trades, then that capital gain will be taxed at 15 % as long-term investments.

So the total tax owed to the IRS in this case will only be 15 thousand dollars and your take-home will be 85 thousand dollars. That's actually a very favorable tax rate and also if the gains in 2019 are less than thirty seven thousand three hundred seventy five dollars and less than forty thousand in 2020, then those gains will not be taxed at all federally that wasn't a joke by the way. That's like a kind of thing that IRS has ever done, however, if we're talking about they trading profits. Here that usually means these are profits from your trades to buy and sell within the same day, that would be considered short-term investments, which is taxed the same way as your ordinary income.

So that's same 100 thousand profit, but this time around from short-term trading we'll be taxed at your regular tax rate of 24 percent federally speaking. So you would owe the IRS twenty four thousand dollars and your take home is only seventy six thousand dollars and that's why it's so important to keep your long-term investment account separate from your short-term day trading or swing trading accounts for accounting purposes. No one really save you a lot of time and headaches when you're doing taxes each spring. So that's the basic summary of what you have to pay in taxes.

If you are a short-term trader that falls under the ordinary investors status. So if you're a part-time trader with a full-time job or if you're, a beginner trader, trying to grow a small account and really 90 percent of the day, traders out there in the United States, they mostly fall under those investor status category in the eyes of the Irs so when filing day trading profits as investor status, you are allowed some very limited tax breaks and, yes, you can claim your losses to offset your gains. This works for both a short term investment, as well as the long term investments, but this is only if your net positive on the year - let's say. Unfortunately, you had a terrible year in the stock market with both day trading and investing, and you are net negative on the year.

You can deduct up to three thousand dollars of losses against your income. Yes, you heard that right only three thousand dollars. So, for example, that's how you chase a penny stock breakout and made a thousand dollars, but you do the same thing again next week and lost five thousand dollars. You can claim three thousand dollars out of that four thousand dollars total loss, and this is for the entire year, by the way, only three thousand dollars of losses against your income.

That's like not even enough to afford a five thousand dollar DVD, any losses over three thousand dollars. It's just straight-up gum that Lamborghini money is being washed in on the train just kidding. You can carry over that excess capital lost credit into the next eight consecutive years, which is better than Canada. Actually, Canadian investors can only carry over the capital loss for three years, but we don't have a $ 3,000 cap.

We just have better jokes that eight-year carry over period for capital losses in the u.s. sounds very nice in theory. But again you can only use up to three thousand dollars of losses to claim against your income each year for the long-term investors, filing taxes and profits from over one year of holding period. That's still not bad because they are getting a very favorable tax rate.

In comparison to ordinary income, but for most day traders and swing traders who are considered really as short-term investors - that's not really ideal at all, so maybe think twice before chasing those chat, room alerts. You know estate traders the only efficient way to optimize your day trading. Profit and losses and pay less tax overall, is, if you remember, to smash the like button. There is a new IRS tax reform change in a section one to three BS that allows you to pay less taxes.

If you tap the light button seriously talk to your CPA about it, save you a lot of money just kidding, but not really estate traders in the United States. The only way really to optimize your day, trading, income and losses, is if you qualify for the trader tax status, which we'll talk about how to qualify for the status and the amazing tax breaks in a little bit. Another thing to be aware of if you're filing as investor status, is the wash sale rule. This applies for both long term and short term investments, and it means that if you sell a stock for a loss, you cannot claim that capital loss.

If you have held the same position, either 30 days before or after the loss sale, which is an extremely tough restriction, especially for day traders, this rule can easily turn your tax filing season into a nightmare. So, that's why it's so important to talk to a certified CPA when you're filing your day trading taxes. Once again, this is just a summary of what I know regarding day trading. Taxes in the US make sure to talk to a tax, professional you'll.

Save you a lot of money and a lot of headache later on. I'm sure you know by now filing us an investor status for your day trading and swing trading, profits really suck. But what, if you file with a tts trader tax status? Spoilers you get a lot better tax breaks, but just a lot harder to qualify as well. The biggest advantage to filing US trader tax status is that you can claim more than just a $ 3,000 capital loss that normal investors have us an extremely active professional day.

Trader each year you can claim all of your losses against your total income. To do so, you must make a mark to market election in Section 475 with the IRS before the tax filing deadline for the previous year. So if you want to make that election and be able to claim all of your losses for the 2020 tax year, then you must have the selection made by April 15. 2020 when you are filing for your 2019 taxes.

Only if you qualify for the trader tax status, another benefit to filing with a TTS is that you're not bound by the wash sale rule that we talked about earlier since you qualify to mark-to-market accounting. But you must pretend to sell all of your holdings by the last day of the year and again pretend to buy all the back. This is just for accounting purposes. Again, talk to your CPA regarding the details in your own tax situation, one more extremely generous tax break that TTS designated treaters have is the ability to write off a lot of your trading expenses, almost anything that you pay for in order to make money with your Trading business is considered tax-deductible.

That means you can claim all your scanners Newswires chat room alerts as well as that $ 5,000 DVD and your rent, a mortgage. If you work from home, this is once again far more superior than if you were filing ordinary income. As a short term investor status because of the tgc a TC j8 because of the tax acts because of the tax cuts and JOBS Act of 2017, what you can write office expenses against your capital gains income as an ordinary investor, has been extremely limited. Now, how exactly do you qualify for this amazing trader tax status? There's actually no specific IRS statue or regulation on this, but here are some very general guidelines of how you can qualify for the status in the eyes of the IRS.

First of all, you should be spending 30 hours or more per week on trading and trading related activities, an average about 4 to 5 day trades per day for most of the tax year. So, unfortunately, if you're trading part-time, while were 2 hours before going to work each day, you're not likely to qualify for TTS, second, your average holding period should be less than 31 days. This should be easy for most day traders out there. Third, you should be treating trading as a serious business with all the necessary softwares research tools and a mythic and trading account if you're, using subpar tours or free tools, there's nothing wrong with that, but in the eyes of the IRS you're, not taking training seriously enough.

As a primary business, and on top of that, if you're trading with a small account of $ 2,000 or $ 5,000, that's not significant enough of a trading account for you to qualify for TTS. Yes, we all know by now the filing is treated tax status. It's the most efficient way to report your day, trading, profits and losses and you'll save you the most money, but it's harder to qualify. When I was working in the US and trading part-time, I didn't qualify for TTS either this trader tax status designation is never guaranteed.

A trader can qualify for the status one year, but not the next or only qualify for part of the year if he does not meet all the general requirements we talked about earlier in the eyes of the IRS. There are a few other ways to qualify for TTS such as forming an LLC or C Corp, but again talk to a tax professional and do your own research on that part, I'm just a Canadian chillin up north sippin on my maple syrup. I don't know what I'm talking about, I'm just making this video for the bad jokes. If you want to learn more details regarding the trader tax status, designation and how to save more money when you're filing your day trading taxes, I'll leave a few website.

Resources in the description below also feel free to check out my friends, fellow trading youtuber, zip trader, charlie he's done a few videos on day trading taxes in the United States. That goes into a lot of details and remember to drop a ravish in comment and tell him now. My jokes are much better than his. Thank you guys so much for watching.

As always, I'm the humble trader and I'll see you guys next week.