CPT Tax Implications & Record Keeping 2

Question 1

A trader who qualifies for trader tax status (TTS) may deduct trading-related expenses on which IRS form?

Accepted Answer

Schedule C

Answer

Traders with TTS status report business expenses on Schedule C, allowing deductions not available to investors.

Question 2

Under the wash-sale rule, if you sell a stock at a loss and repurchase the same stock within how many days before or after the sale, the loss is disallowed?

Accepted Answer

30 days

Answer

The wash-sale rule disallows a loss if the same or substantially identical security is purchased within 30 days before or after the sale.

Question 3

Which tax election allows eligible traders to mark all open positions to market on the last day of the tax year, converting capital gains/losses to ordinary income/loss?

Accepted Answer

Section 475(f) election

Answer

The Section 475(f) mark-to-market election lets qualifying traders treat unrealized gains and losses as ordinary at year-end.

Question 4

For a trader filing as a sole proprietor with TTS, how are net trading profits subject to self-employment (SE) tax?

Accepted Answer

Net trading profits are never subject to SE tax

Answer

Trading gains, even for TTS traders filing on Schedule C, are generally not subject to self-employment tax because trading is not considered a 'trade or business' for SE tax purposes.

Question 5

What is the holding-period threshold that distinguishes a short-term capital gain from a long-term capital gain in the US?

Accepted Answer

More than 12 months

Answer

An asset held for more than 12 months qualifies for long-term capital gains rates, which are lower than ordinary income rates.

(CPT) Certified Pro Trader Practice Test

(CPT) Certified Pro Trader Practice Test

CPT Tax Implications & Record Keeping 2