This is a series about the 5 Most Expensive Tax Mistakes That Traders Make. Many people do not think of stock investing and stock trading as a business. But if you make a decent income from stocks, options, futures, forex, bonds, or commodities, consider the extra benefits setting up a small trading business would provide.
Mistake #4. Wrong Home Office Deduction.
Home office expenses are probably the most misunderstood deduction in the entire tax code. For years, taxpayers feared it raised an automatic audit flag. But Congress has relaxed the rules, so now home offices attract far less attention.
Most traders should have no problem qualifying for the home office deduction. Claiming a home office lets you deduct the “business use percentage” of your mortgage interest or rent, property taxes, utilities, repairs, insurance, garbage pick up, and security. You even get to depreciate part of your purchase
So how do traders get this wrong? Most people are unaware that there are TWO ways you can determine your business use percentage. The first way that most people are aware of is the square footage method. You take the square footage of your office and divide that by the square footage of your home. If your office is 200 sq ft and your home is 2000 sq ft, you are using 10% and can deduct that percentage of your expenses.
However, the lesser known way to calculate your business use percentage is the number of rooms method. Just as it sounds, you take the number of rooms you are using and divide it by the number of rooms in your house. You are allowed to exclude bathrooms, closets, and your garage.
For instance, if you are using one room for your office and you have seven (3 bedrooms, living room, dining room, kitchen, family room) rooms total, your business use percentage comes out to 14%. From the example above, you’ve just increased your home office deduction by 40% using this method!
Part 1. The Wrong Business Structure.
Part 2. Why Are You Not Hiring Your Kids?.
Part 3. Missing Health Care Strategies.
Part 5. Mark to Market Election
ETF (Exchange Traded Fund),
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