The IRS released the 2016–2017 per diem rates for substantiating employee business expenses under IRC Sec. 274(d) for lodging, meals, and incidental expenses incurred while traveling away from home. The Meal and Incidental Expense (M&IE) rates for the transportation industry remain at $63 for travel in the continental U.S. and $68 for travel outside the continental U.S. The per diem for travel to high-cost localities increases from $275 to $282 ($68 for M&IE), while the rate for travel to other localities increases from $185 to $189 ($57 for M&IE). The incidental-expenses-only rate remains at $5 per day. The updated rates and list of high-cost locations apply to per diem allowances paid to employees after 9/30/16. Notice 2016-58, 2016-41 IRB
Archives for September 2016
If you invest, whether you’re considered an investor or a trader can have a significant impact on your tax bill. Do you know the difference?
Most people who trade stocks are classified as investors for tax purposes. This means any net gains are treated as capital gains rather than ordinary income.
That’s good if your net gains are long-term (that is, you’ve held the investment more than a year) because you can enjoy the lower long-term capital gains rate. However, any investment-related expenses (such as margin interest, stock tracking software, etc.) are deductible only if you itemize and, in some cases, only if the total of the expenses exceeds 2% of your adjusted gross income.
Traders have it better in some situations. Their expenses reduce gross income even if they can’t itemize deductions and not just for regular tax purposes, but also for alternative minimum tax purposes.
Plus, in certain circumstances, if traders have a net loss for the year, they can claim it as an ordinary loss (so it can offset other ordinary income) rather than a capital loss. Capital losses are limited to a $3,000 ($1,500 if married filing separately) per year deduction once any capital gains have been offset.
Passing the trader test
What does it take to successfully meet the test for trader status? The answer is twofold:
1. The trading must be “substantial.” While there’s no bright line test, the courts have tended to view more than a thousand trades a year, spread over most of the available trading days, as substantial.
2. The trading must be designed to try to catch the swings in the daily market movements. In other words, you must be attempting to profit from these short-term changes rather than from the long-term holding of investments. So the average duration for holding any one position needs to be very short, generally only a day or two.
If you satisfy these conditions, the chances are good that you’d ultimately be able to prove trader vs. investor status. Of course, even if you don’t satisfy one of the tests, you might still prevail, but the odds against you are higher. If you have questions, please contact us.