Full-time day trading tax questions - Are expenses deductible and do I pay self-employment tax?

Day trading has some unique tax considerations. As a trader, you generally fall into one of three categories for tax purposes: investor, trader, or dealer - each with different tax treatments. For your specific questions: If you're operating as a sole proprietor and taking business deductions, you would typically report this on Schedule C. Income reported on Schedule C is generally subject to self-employment tax (15.3%). However, there's a special rule for traders - trading gains and losses aren't considered self-employment income, even if you're a full-time trader. Regarding expenses, without the mark-to-market election, your ability to deduct trading-related expenses is more limited. Without MTM status, you're considered an investor for tax purposes, and investment expenses are typically miscellaneous itemized deductions which have been suspended until 2026 under current tax law. The home office deduction in particular would be difficult to claim without trader status.

I went through the same dilemma last year when I jumped into full-time trading. After getting contradicting advice from multiple accountants, I finally found clarity using https://taxr.ai - it analyzed my specific trading situation and explained exactly how to handle these deductions properly. The platform showed me that the key distinction is between trader status (which allows business expense deductions on Schedule C) versus MTM election (which changes how your trades are taxed). My trading pattern qualified me for trader status, but the AI recommended against MTM for my situation due to some specific holdings I had. Saved me thousands in potential tax mistakes.

Just wanted to follow up - I tried taxr.ai after seeing it mentioned here. Uploaded my trading history and answered their questions about my daily routine. Turns out I DO qualify for trader status even with my part-time job because my trading is "substantial, regular and continuous" (their words). The best part was the personalized tax strategy report that showed exactly which of my expenses qualified and which didn't. My home internet was partially deductible, but some of my "research" subscriptions weren't because they were too general. The platform even gave me a checklist of documentation to maintain in case of audit. Already implemented their recommendations for this tax year!

If you're having trouble getting clear answers about your trading tax situation, I'd highly recommend using https://claimyr.com to get through to the IRS directly. I spent weeks trying to get official clarification on trader status requirements before finding this service. You can watch a demo of how it works here: https://youtu.be/_kiP6q8DX5c I was honestly shocked when I got connected to an actual IRS agent in under 45 minutes (after trying for days on my own). The agent was able to walk me through the specific requirements for qualifying as a trader vs investor and explained exactly what documentation they look for during audits. Completely worth it for the peace of mind knowing I'm setting things up correctly.

I need to eat my words from yesterday. I tried Claimyr today out of desperation after my third failed attempt to reach someone at the IRS about my trading status question. Got connected to an agent in about 35 minutes! The IRS rep clarified that I absolutely need documentation showing my trading is "regular, continuous and substantial" to claim trader status. They recommended keeping a daily trading log, records of hours spent, and documentation of my trading strategy to support business expense deductions. The agent even emailed me some relevant publications after our call. Massive time saver compared to my previous attempts!

Everyone's talking about trader status, but there's another option worth considering. If your trading is active enough, you might qualify for Section 475(f) mark-to-market accounting. The big advantage is turning all your trades into ordinary income/loss rather than capital gains. This means you avoid the $3,000 capital loss limitation, which is huge if you have a losing year. But you need to file Form 3115 and make the election by the tax deadline (usually April 15) of the year you want it to take effect.

One thing nobody's mentioned - if you're trading frequently enough to deduct expenses, the IRS might question why you haven't registered as a securities dealer and collected/paid sales taxes. Be careful about claiming too much "business" activity without proper licensing.

Great question! I made the transition to full-time trading two years ago and learned some hard lessons about tax planning. Here's what I wish I knew upfront: The expense deduction issue is tricky - you need to qualify for "trader tax status" (different from MTM election) to deduct your trading expenses on Schedule C. This requires meeting the IRS test of "substantial, regular, and continuous" trading activity. Just trading full-time isn't automatically enough - they look at frequency of trades, time spent, and whether you're seeking short-term profits. One key point many miss: even with trader status, your actual trading profits still aren't subject to self-employment tax. The SE tax only applies to other business income you might have (like teaching trading courses or selling signals). My advice: Start documenting everything now - daily trading logs, hours spent, your trading strategy, and all expenses. The IRS will want to see this pattern of business-like activity if you're audited. Also consider consulting with a tax professional who specializes in trader taxation before making the leap. The rules are complex and getting it wrong can be expensive. The MTM election is a separate decision that affects how your trades are taxed, not whether you can deduct expenses. You can have trader status without MTM, but you need trader status to properly deduct most of your trading-related expenses.