MTM trader Net Income only shows expenses?

Forum|Forum|1 year ago
March 29, 2025
1 reply
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MTM trader's gain/losses are entered into 4797 form. I have some gains there. The gains are more than the expenses. The gains/losses will not be shown in the trader's Net Income. When I added the home office expense, the Net Income changed from 0 to a negative number. This directly causes the Audit Risk from Low to Medium. I think there must be something wrong here. Please help.

BTW,

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TurboTax Home & Biz Windows

ThomasM125

Reporting a home office on your tax return would increase your audit risk, as that deduction has a lot of opportunity for inaccuracies associated with it. The main problem is that the office space must be used exclusively for business purposes, which can be hard to do since you are living in the house. For instance, the mere presence of a television in your home office would be grounds for the IRS to disallow the deduction, as watching television would be a personal thing and would thus violate the exclusive business use test.

A negative business income would also increase your audit risk, as you must have a profit motive to have a legitimate business and thus be able to deduct a loss from it on your tax return.

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Mike9241

That is correct. As a MTM trader expenses go on Schedule C. Your MTM (trading) income/loss goes to Form 4797 and from there to line 4 on schedule 1. You have to decide if the HO deduction is worth the increased risk of audit. Another potential issue is if your schedule C loss, Trading profits and HO deuction routinely result in a net loss. the IRS could deny you the deduction on the basis that the activity was not enter into for profit. Code section 183

likesky1010Author

@Mike9241

I thought it would be better to claim a home office for the new MTM trader business. Otherwise, how will the IRS consider you are seriously handling the trading as a business? If the home office is not one of the factors for the IRS to agree with you your trading is a business, not a hobby, I will not share the home office with the new trader business.