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?”
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. You’ll find all the information you ever wanted on traders.
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.
And remember, you can find answers to all kinds of questions about day traders and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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- TaxMama Articles :: Is Your Client an INVESTOR? a TRADER? Or a Mark to Market Traders by Nancy E Goedecke, EA