Beginner Trading Fundamentals: Record Keeping And Taxes
  1. Beginner Trading Fundamentals: Introduction
  2. Beginner Trading Fundamentals: Charting
  3. Beginner Trading Fundamentals: Leverage And Margin
  4. Beginner Trading Fundamentals: Popular Trading Instruments
  5. Beginner Trading Fundamentals: Limiting Risk
  6. Beginner Trading Fundamentals: Strategy Automation
  7. Beginner Trading Fundamentals: Record Keeping And Taxes
  8. Beginner Trading Fundamentals: Conclusion

Beginner Trading Fundamentals: Record Keeping And Taxes

As with any business, it's important to keep accurate, organized and up-to-date records for your trading business. It is a good idea to have both digital and hard copy backups of essential trading -related documents, including:
 
Your Trading Plan:

  • A description of the plan
  • The programming/coding for the plan (if applicable)
  • Inputs (for example, the length of the moving average)
  • Past versions of the plan

Brokerage Statements:

  • Organized by broker
  • Should be reconciled monthly (mistakes do happen)

Trading Journals:

  • A record of your trading activity

Resources:

  • List of important phone numbers (i.e., broker, ISP)
  • Economic calendar
  • List of market holidays
  • Rollover dates
  • Troubleshooting list

 It is helpful to keep a digital copy of these in one folder on your computer and a hard copy of each in a dedicated "trading binder" with dividers for each section.
 
Beyond the Documents
Staying organized in general - beyond the relevant documents - can make it easier to be an effective business owner and trader. Your office and trading desk, for example, should be well-organized, free of clutte, and have necessary office supplies handy. Things such as calculators, paper and pencil, your trading journal and a list of important number should be easy to find at all times.
 
It's helpful to also have a structured method of conducting research and development for your trading plans. Much of this comes down to having a well-thought-out method of conducting your research, so that you don't waste time repeating work you've already done. Having a methodical means of labeling the different versions of your trading plan, for example, can make it much easier to find what you're looking for. Your countertrend strategy, for instance, might start as CounterTrend V1.0; after making changes, the next version can be saved as CounterTrend V1.1.
 
Taxes
The IRS expects you to follow the same tax laws as investors, unless your trading activity reaches a certain level and you achieve "trader tax status." Active traders can make the mark-to-market (MTM) election for tax purposes, which makes it possible to deduct certain trading-related expenses, such as platform fees and education. Not everyone qualifies for MTM status, nor would everyone want to. If you make this election, all your positions must be counted as closed at the end of the year; whether or not they have actually been closed, all related taxes become due.
 
While securities traders in particular may benefit from making the MTM election, it can be a detriment to futures and commodities traders who typically have more favorable tax treatment without the election. Reversing the MTM election can be difficult; if you are considering making the election, you should consult with a qualified CPA, tax specialist or attorney who has experience with trader tax issues, before making any decisions.
 
Trading tax laws are complicated and do change from time to time. As such, it is typically worth the expense and effort to find a qualified professional to handle your taxes. Keeping good records can make tax time less stressful and even less expensive if you are working with a CPA, tax specialist or attorney. 

Beginner Trading Fundamentals: Conclusion

  1. Beginner Trading Fundamentals: Introduction
  2. Beginner Trading Fundamentals: Charting
  3. Beginner Trading Fundamentals: Leverage And Margin
  4. Beginner Trading Fundamentals: Popular Trading Instruments
  5. Beginner Trading Fundamentals: Limiting Risk
  6. Beginner Trading Fundamentals: Strategy Automation
  7. Beginner Trading Fundamentals: Record Keeping And Taxes
  8. Beginner Trading Fundamentals: Conclusion
RELATED TERMS
  1. Tax Year

    The period of time which is covered by a particular tax return. ...
  2. Tax Deductible Interest

    A borrowing expense that a taxpayer can claim on a federal or ...
  3. Direct Tax

    A tax that is paid directly by an individual or organization ...
  4. IRS Publication 552 - Recordkeeping For Individuals

    A document published by the Internal Revenue Service (IRS) that ...
  5. Tax Break

    A tax break is a savings on a taxpayer's liability. A tax break ...
  6. Net Of Tax

    An accounting figure that has been adjusted for the effects of ...
RELATED FAQS
  1. How Long Should I Keep My Tax Records?

    Having the right information available when the IRS calls can save you considerable time, money and stress. Learn how long ... Read Answer >>
  2. What is the difference between federal and state withholding tax?

    Discover whether you can file your taxes by yourself. The three main options for tax preparation are a tax professional, ... Read Answer >>
  3. What documents should I have ready in case my partner or I should die?

    Estate planning is one of those topics that most people avoid dealing with until they're forced to. Because of this, many ... Read Answer >>
  4. Can moving to a higher tax bracket cause me to have a lower net income?

    Many people think that when their income increases by enough to push them into a higher tax bracket, their overall take-home ... Read Answer >>
  5. How can I make sure I'm ready to file my taxes?

    Whether you file your return yourself, or have it done by a tax professional, you want to make sure you include all your ... Read Answer >>
  6. How do I calculate my effective tax rate using Excel?

    Find out how to calculate your effective tax rate using Microsoft Excel, what income tax rates to apply to your earned income ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center