10k tax bill from trading options

[gopal77]

I’m not sure if this is the best sub for my question, but I’m hoping there’s someone else who has been through this.

I’m 32 and halfway through 2018 I started heavily trading options and ended the year with around 36k in gains. I’m trying to prove out over a several year period consistent gains with the goal of “retiring” at 40 from my day job and trading full time. For 2019 Ive averaged about 5k/mo to date, but my goal is $6,500/mo, so my tax bill for 2019 will be significantly higher. As 2018 was my first year heavily trading, I’m concerned I’m not doing it in the most tax advantageous way. I just plugged all my 1099s into TurboTax and now owe 10k.

How can traders reduce their tax bill? Would it be better to trade under a business? Any advice to lower my tax bill from others who trade would be appreciated.

[Much Fishing to Do]

If you're trading successfully, which it sounds like you are, I wouldn't let the tax tail wag the dog, but the only two things I can think of are:

IRAs - obviously doing this in a tax advantaged acct would help, though it not allowing margin trading might take away some of the strategies you are doing

trade mostly index options - these get taxed more advantageously than stock options (some fairly large percentage of gain is always assumed as LTG even if you flip it in a day)

Again though, if the limitations on each take away from your success they are not worth it.  Good luck

[bacchi]

If your options are 1256 contracts (index options, as mentioned ^^), you'll be able to use any losses to adjust previous tax returns. In other words, don't worry about it -- any past tax liability might well be wiped out when your experiment hits a snag. :-)