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
- Organized by broker
- Should be reconciled monthly (mistakes do happen)
- A record of your trading activity
- 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.
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.
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