Sort of Day Trading

Today TaxMama hears from Marty in Colorado, with this question. “Assuming I have a sole proprietorship whereby some of the business is trading stocks (such as day trading), can I properly deduct the cost of software that assists me in doing this trading?
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Hi Marty,

Hmmm…you can’t have a business where ‘part’ of your business is day trading. You’re either a trader, or you’re not.

If you meet the definition of a trader (and that means a separate Schedule C, not part of some other business), the software would be deductible on the Schedule C.

Read about the rules in this excellent article written by Nancy E Goedecke, EA.
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You’ll find all the information you ever wanted on traders.
https://taxmama.wpengine.com/Articles-Pro/traders.html

If you do not meet the definition of a trader, the software might be deductible on Schedule A as an investment expense. Of course, on Schedule A, the cost gets reduced by 2% of your adjusted gross income (AGI), which is the last line on page 1 of your Form 1040.
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And remember, you can find answers to all kinds of questions about day traders and other tax issues, free.
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Where? Where else? At TaxMama.com

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  • Ask TaxMama :: Where taxes are fun and answers are free
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  • TaxMama Articles :: Is Your Client an INVESTOR? a TRADER? Or a Mark to Market Traders by Nancy E Goedecke, EA

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