Taxes are most people’s worst nightmare. Compiling a years worth of receipts, digging up transactions, and trying to save the most money possible isn’t fun. Small business owners have a lot of complications when it comes to tax time. Traders and active investors have their own sets of problems.
Fortunately, The Training Academy has provided us with a resource to highlight the top ten mistakes that most traders make when it comes to Uncle Sam and the IRS. According to them, the tax code is 73,954 pages long and contains almost 2,000 different publications and tax forms. This means that the tax game is incredibly complicated and hard to win at unless you can find the right loopholes. So let’s take a look at the top 10 mistakes.
- Not filing a return due to tax losses and minimal trading: failure to report minimal trading activity can lead to penalties, so file a return.
- Reporting gains on losses on Schedule C instead of Schedule D: IRS code limits losses to $3,000 so they cannot all be written off. Even if trading is your primary means of income, it must be on Schedule D.
- Paying Self Employment taxes on trading: no one wants to overpay! Trading income is not considered earned income and therefore isn’t subject to self employment taxes
- Mixing up tax treatment between securities, 1256 contracts, forex and options: confusing yes. They are different and therefore taxed differently.
- Using turbotax to prepare taxes: traders have complex taxes and cannot use the simple solution. Use an experienced firm when preparing taxes because Turbo tax won’t help you.
Curious to learn more? See the infographic below.