# day trader losses



## boise117 (Jan 22, 2011)

Hi, I am a home-based daytrader with losses for 2010 & will be filling out the tax form for this 'business' 1st-time. Can someone help me :
a) I have decided to take the losses on the income and not capital side so that future income can be offset against 2010 losses. since these losses were from the joint account with my wife, can I allocate 50%-50% on these income losses towards the tax reporting for both my wife and I?
b) other than submitting the T1, I believe the T2125 needs to be filled? Looking at the T2125, it asks for Acct Number, Business Name, Tax Shelter id no, etc - do I need all these? I read the Guide T4002 but can't make sense how a daytrader should fit the following info into the T2125 ie.
Jan1,2010 : started with eg. $100K
Dec31,2010 : ended with $30K
Deducted mid-year : $20K
So actual loss : 100K-30K-20K = $50K
How do I key all this into info into the Parts 1, 3 & 4 & 6? T2125 is asking for sales, reserves, inventory - which don't seem to apply to a daytrader business.
c) since I have losses to declare for 2010, will including the business-use-of-home expenses be beneficial to me in terms of increasing the tax$losses to carry over to future years (to offset future income)? Or are these expenses only applicable to report for the tax year when one's 'business' has profits?
d) finally, for a simple daytrader 'business', should i get a tax software, go to (eg) H&R accountant or do the above myself (to save some money given the losses I've already incurred).


Thank you all.


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## MoneyGal (Apr 24, 2009)

Hooboy. This post raises *lots* of issues. Before you do anything, you should be very clear about the implications of having your gains/losses taxed as income. Most daytraders want to have the other treatment of gains/losses - i.e., to retain the capital nature of the transactions. 

Your intention to have the losses allocated equally between you and your spouse is another red flag issue. 

I strongly advise you to get professional tax advice (i.e., not H&R Block). The issue is not so much "getting your taxes done," but to be sure you understand the implications of your choices in how to report your gains/losses. If you continue daytrading beyond this first year, the choices you make now in how you structure the venture for tax purposes will have long-lasting implications.


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## OhGreatGuru (May 24, 2009)

The mind boggles.  I agree with Money Gal you need professional advice. 

On one item, unless your wife is a partner in your day-trading "business" it doesn't make sense that she be able to share the income/losses. You need to separate your business accounts from the family accounts, among many other things.


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## fraser (May 15, 2010)

Get ready for an audit...keep all those trading slips and bank records. You will need them.


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## Square Root (Jan 30, 2010)

Hope you improve your results before you run out of capital.


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## Larry6417 (Jan 27, 2010)

Boise117:

My condolences on your losses. I agree you need professional help if you wish to pursue this career. Before doing that, you really need to consider whether you _should_ pursue this. Income is taxed much more heavily than capital gains. However, the converse is also true: deducting losses from income is more beneficial than deducting capital losses from capital gains. Therefore, declaring your trading losses as lost income make sense (from a tax perspective) *only* if you expect ongoing losses, which begs the obvious question. Why are you doing this?


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## Four Pillars (Apr 5, 2009)

I hope you stop for your marriage. Not many spouses will stick around for consecutive $70k losses.


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## OhGreatGuru (May 24, 2009)

boise117 said:


> Hi, I am a home-based daytrader with losses for 2010 & will be filling out the tax form for this 'business' 1st-time. Can someone help me :
> 
> Jan1,2010 : started with eg. $100K
> Dec31,2010 : ended with $30K
> ...


Lets see, S&P/TSX gain for 2010 was 17.6%;
S&P 500 gain for 2010 was 9.0%;
MSCI World gain for 2010 was 6.5%;
Average return for CDN Equity Mutual Funds was 14.1%;
Average return for US Equity Mutual Funds was 9.4%.

But you, you cleaver devil, managed an internal rate of return of about *-80%* if my calculations are correct. (unless the figures you quoted were just by way of example.) In any case, if you had any net loss for the year you are not succeeding at outguessing the market.

May I suggest you find another line of work?


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## Square Root (Jan 30, 2010)

It' not easy being a day trader. Very risky line of work.


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## Eclectic12 (Oct 20, 2010)

Larry6417 said:


> Boise117:
> 
> My condolences on your losses. I agree you need professional help if you wish to pursue this career. Before doing that, you really need to consider whether you _should_ pursue this. Income is taxed much more heavily than capital gains. However, the converse is also true: deducting losses from income is more beneficial than deducting capital losses from capital gains. Therefore, declaring your trading losses as lost income make sense (from a tax perspective) *only* if you expect ongoing losses, which begs the obvious question. Why are you doing this?


Hmmmm ... is there still have a choice?

Link indicating day traders are to pay income tax instead of capital gains:
http://www.taxtips.ca/personaltax/investing/taxtreatment/capitalorincome.htm

Or is this another one of those gray areas for the CRA?


Cheers


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## Larry6417 (Jan 27, 2010)

Eclectic12 said:


> Hmmmm ... is there still have a choice?
> 
> Link indicating day traders are to pay income tax instead of capital gains:
> http://www.taxtips.ca/personaltax/investing/taxtreatment/capitalorincome.htm
> ...


Actually, it is a grey area, though CRA tries to define the problem in the way causing the most tax revenue. If one "day trades" as a hobby i.e. has employment income, then the trading activities might be considered capital gains or losses. CRA uses other tests to determine if the income qualifies as business income including time securities are held, whether margin is used, and whether the trader advertises himself as a professional.


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## boise117 (Jan 22, 2011)

Hi,

yes, I am deservedly chastised for my losses. no one to blame but me.

for my circumstance, can I confirm that buying Quicktax/TurboTax/Ufile (and the like) is not to be recommended for my situation?

And if I do indeed need professional advice (being a migrant with no contacts), can someone guide me how I can find someone reliable, trustworthy and affordable for my needs (if you were in my shoes)? 

Or can I just call CRA's 1800 number and get advice from them?

thank you all.


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## Eclectic12 (Oct 20, 2010)

Larry6417 said:


> Actually, it is a grey area, though CRA tries to define the problem in the way causing the most tax revenue. If one "day trades" as a hobby i.e. has employment income, then the trading activities might be considered capital gains or losses. CRA uses other tests to determine if the income qualifies as business income including time securities are held, whether margin is used, and whether the trader advertises himself as a professional.


Why am I not surprised? ... 

... oh wait, this is the same group that prints on the tax forms something to the effect of " .... we are not bound by the advice our staff gives you ....".


Personally, I'm happier staying away from day trading anyway.

Cheers


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