This week we spoke with Thomas Mocera, a Licensed Tax Professional about how we should prepare our taxes as traders. Whether you trade for a firm or your own capital, he has the answer!
Can you tell us a little bit about your background?
When I first went to college it was for Accounting, but as you know, things happen, and I ended up getting my Bachelors in Business Administration. However, I’ve always been a numbers guy, and have dealt with taxes of friends and family since I was probably 18 years old. Fast forward, I have my degree in business administration and I decided that it would be better to become an EA (enrolled agent), which is basically the same thing as a CPA (Certified Public Accountant). We are both enrolled to practice before the IRS and do the same thing with regards to taxes. My main focus with regards to taxes are traders and investors.
Can you tell us a little bit about Traders Tax Pro?
We help Traders and Investors with their taxes and bookkeeping. We prefer to help smaller guys because we like to see you grow into successful Traders and Entrepreneurs. We are 100% remote and offer services to clients in all 50 states. We use a secure client portal, so you are able to sign in and navigate all your documents and communicate with our staff quickly and effectively.
What are the 3 different Trader classifications in the eyes of the IRS?
There are 3 classifications with the first being an Independent Contractor. An Independent Contractor performs work on behalf of the prop firm. You are not an employee of theirs and not receiving wages. This means you are self-employed. The next would be a Sole Proprietor; which means you conduct business activity without an entity formed. You still report your activity as business activity on your return. And, the last would be a SMLLC; meaning all business activity passes through to your individual tax return as a disregarded entity, and you do have the option to elect S-Corp status.
Should we be keeping track of our PnL?
As a Funded Trader, you do not realize any loss with regard to earnings, as you do not realize earnings on a Funded account; you do not “eat” your losses the firm does. Although you may receive a 1099 from the firm, you want to stay organized and keep all invoices and receipts of payment. It is best practice to have proper bookkeeping.
What kind of deductions can we take advantage of as a Funded Trader?
As Funded Traders you will be able to deduct anything that is considered ordinary and necessary for the line of business you are in. Some examples of this would be but not limited to, a home office deduction, 50% of self-employment tax, internet and cell phone bills, TradingView subscription, education expenses, and challenge fees.
Why do you need bookkeeping as a Funded Trader?
You are conducting business activity. All businesses should have their books well-kept for organization purposes. You will be able to pull reports for your business; you may be required to provide financial statements like a balance sheet & PnL statement for your tax return, as an S-corp Funded Trader.
How can someone sign up for your bookkeeping services?
You can reach out to me by email or go to Traderstaxpro.com.
Should we have a separate bank account for our business?
If you create a separate entity for your business, the first thing you should do after receiving your EIN and your article of organization, is go to the bank and create a business bank account.
If we are paid out in crypto and do not sell it do we have to report it to the IRS?
There is a checkbox on your tax forms that asks if you are involved in crypto. So if you are involved in crypto; you have to report it but it is not taxable if it hasn’t been sold.
Editorial Note: Some responses have been altered to fix grammatical errors.