How Day Traders Can Reduce Taxes Legally

On today’s Tax Tuesday, tax experts Toby Mathis, Esq., and returning guest Jeff Webb, CPA of Anderson Business Advisors, share their expert advice on tax strategies associated with setting up a home office, the potential consequences of being classified as a real estate dealer instead of investor, and how the IRS can view real estate flips as inventory and treat you as a dealer, leading to self-employment tax and other repercussions. Listeners are also guided through minimizing stock gains as a day trader and understanding rental property ownership. Submit your tax question to taxtuesday@andersonadvisors.

Highlights/Topics:

• What are the requirements for bonus depreciation? - Bonus depreciation applies to tangible personal property with a depreciation life of 20 years or less.
• Can I 1031 exchange the entire proceed from the sale of a property with two structures, one rented and one as a main house? - Yes, you can 1031 exchange the rental portion, and possibly the entire property if it is converted into a rental before sale.
• Can I still invest in the 2022 tax year such as starting a solo 401K if I extended my tax return filing to October 2023? - Yes, you can make retirement contributions for 2022 up until your tax return deadline, including extensions.
• What are the benefits of an S corporation status for a small business owner versus sole proprietorship or LLC? - S-Corp can provide tax savings through reduced self-employment taxes, and may have lower audit rates than sole proprietorships.
• Can first-year business expenses be carried forward to the following year if there is no income in the setup year? - Yes, you can carry forward business losses to offset future income.
• Can I have a home office deduction if I rent the property? - Yes, renters can take a home office deduction if they meet certain requirements.
• How can I minimize day trading stock taxes? - Strategies include careful risk management, using tax-advantaged accounts, and offsetting gains with losses.
• Can I deduct expenses from my LLC registered as a partnership for fix and flip houses? - Yes, expenses related to the business operation can generally be deducted, though there may be limitations.
• Are all expenses related to the purchase and rehab of a rental property included in the basis for depreciation? - Yes, purchase price and most rehab expenses are included in the depreciable basis of a rental property.
• What's the best way to minimize the loss of passive losses on rental activities due to the AGI phase-out? - Carry forward passive losses until passive income is earned, become a real estate professional, or dispose of the activity.

Resources:

Infinity Investing

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