Monday, June 23, 2008

A Confused Investor

Hello June,

I've read your book, Self-employed Tax Solutions, and have visited your web site many times and have taken away much information. I am, however, looking for a little clarification on one issue.

I was self-employed as a Supervisor up until January of this year when my assignment ended. From that time on I have been making a living by trading options in the stock market. On one of your past answers you stated that the IRS does not consider you self-employed if you are living off investment income which is fine with me.

However, since I make around 30 trades a month and have projected a six figure income by next year, I have been told that the IRS will consider my efforts as being self-employed and I will have to pay SE tax. Do you agree?

Thanks for your time and useful information,
Bob Whitehall, PA

Hi Bob,

I think your are mixing apple stock with peach options.

Amount of investment income does not determine whether one is self-employed or not. The IRS may more readily scrutinize someone with substantial investment income and large self-employment losses over someone with the same losses but little or no investment income.

What I think you are asking is about someone who invests only for himself rather than someone who provides investment services for others. If you invest only for yourself you are not self employed no matter how many transactions nor how much money is involved. Your income is not subject to self- employment tax.

Take a look at these posts for more clarification INVESTOR-TRADER .


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