July 17, 2017

Tips on How Professional Traders Can Save on Taxes

A lot of traders don’t seem to be aware of the laws on tax returns. You don’t need to needlessly spend thousands of pounds, and that’s why you should educate yourself before planning and filing for tax returns. In order to give you a clearer picture on how you can save, here are some of the most common mistakes that traders or non-certified CPA accountants make when filing for tax returns.

Not setting up a trading entity

You need to make a trading entity in order to get the deduction benefits for retirement and health insurance. These deductions can help you save up to £1,500 to £12,000 in taxes but take note that sole proprietorship on retail traders can’t get them via gains. By forming simple entities such as an LLC, S-Corp, or partnerships, traders can enjoy these tax deductions.

Not claiming trader tax status


Business traders can save £4,000 or more using business expense treatment. Business expense treatment can deduct tax costs from gross income, where investment costs are treated as miscellaneous deductions. These deductions are subtracted in excesses of 2% depending on a person’s adjusted gross income. The deductions are only inserted back in for the alternative minimum tax that is sometimes called “second tax regime.”

Business expenses allow deductions for startups and home office scenarios but investment expenses do not. In addition, traders may file for trader tax status that includes amended tax return filings.

Capital Gain Vs. Trading Transaction

FOREX trading can be quite tricky due to the fluctuations that occur on a daily basis. According to FXCM, with a £4 trillion a day market exchange, FOREX’s liquidity is so deep that banks allow people to trade with leverage. Of course, not all FOREX exchanges end up in favour of a trader. In terms of FOREX trading, the first thing that you need to know is to determine the nature of the activity. Are you looking at capital gains or trading transactions? According to Tax Insider, either could have a major effect on the tax treatment as trading transactions would be subjected to income tax, and capital gains would be classified into capital gains tax.

Any profits would be taxed as a gain. Whether or not you obtain the funds from your trading account is not relevant. The gains rise when you dispose of the FOREX and gain revenues. The gain must be included in your tax return even if you don’t withdraw the cash. Always remember that when you leave the UK, the gains and trading transactions will be taxed but not when you obtain the funds from your trading account. If you’re a UK resident when you leave the UK, then you won’t be taxed on the gains realised on your account.

Apart from knowing these things that can reduce your taxes, remember to familiarise yourself with assets that should and shouldn’t be taxed. You may be paying for things that you shouldn’t be. All it takes is a little bit of research on your end.