Proactive professional trader status as individual

Taxes
21

If you actually think you can beat the market you should aim to not be classified, no?

IMO, the only reason one wishes to get classified as Pro is that one thinks that there will be more losses than gains in the coming e.g. 20 years. Then you would save money. But if someone actually believes this, they would even save more money by letting the investment sit in a 1% bank account.

It’s like very disadvantageous hedging. Limiting the downside slightly (tax deductions) while heavily limiting the upside (capital gains tax + social taxes).

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22

Still cannot get the use case clear in my head
It looks like there is some other value of wanting this classification

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23

There is another case where professional trader status may be advantageous and that’s for positions where the interest/dividend income is higher than the total return (with the total return still being positive). This is the case for some bonds and maybe also for some high dividend stocks. Being able to deduct capital losses from capital income helps in such cases.

That said, it seems unlikely that many people would have an advantage with the professional trader status when considering the complete portfolio, not just those special cases.

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24

Yes, the academic curiosity about the process (if I understood @rho4 correctly), which I actually support as an uninvolved mustachian. :smiley:

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25

If you really want to know you should try to get a “Steuerruling”. State your case.

That you intend to build your future as Trader. That you might have losses in the first two years and for that reason decided not to leave your salaried job and that you like for this reasons to be calssified as professional trader now or you like no have confirmation that they allow to write off the losses from the previous years once you become a professional trader.

A Steuerruling is imho the only way you can get a reliable, answer from your tax office.

(not that I think the idea itself is a good one).

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26

You’d have to think about double taxation I assume → whole topic for itself.

Subjective I guess. To me it feels like the law’s intent has always been to uphold Switzerland’s somewhat unique situation where realised long-term capital gains are not taxed. Similar efforts for long-term real-estate gains.

Sounds like what every Mustachian hopes to achieve after early retirement.

Yes, this is the core argument of the court decisions. The problem is that if you only become profitable after a few years, it is too late to deduct the previous years losses.

It doesn’t have to be your main job. You just have to generate income. For some reason it has to be significant before you are taxed, unlike any other Nebenerwerbstätigkeit.

I’m trying to become profitable with daytrading. If this were to happen, there would be a very significant chance that I would be classified as pro, but I couldn’t retroactively deduct my losses from the initial years. If I never manage to have a positive year, I have to accept that I am just a hobbyist and that the tax office was right all along in treating my activities as such.

It’s not a choice. If I have enough gains, I will be classified.

Yes.

Believe me I am, and I might come to regret this heavily :sweat_smile:. With losses it would be worth it. And if I were to keep losing, I would lose the status again after a few years.

That is the point of this endeavor. I don’t think so if you didn’t at least try to deduct the losses in those years (and also kept track of income and expenses).

I believe the same rules apply as for any other self-employment.

With pro-status, unrealized P/L is added/removed from taxable income.

It’s not really a choice once you beat the market.

Yes, I intend to get that ruling. My intent is to become profitable, not leave my salaried job.

That is exactly what I’m trying to do :ok_hand:

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27

I understand.

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28

Imagine I say to the tax office:

“hey. I’m a pro golfer. I want to take a tax deduction on all my golf clubs and fees at the golf club.”

“no. I’m still working full time and getting paid there. i’m just practising after work.”

“no. I haven’t made any money yet or won any competitions, but I in a few years I intend to win the PGA.”

“well. maybe we can agree i’m already professional and I can deduct all these expenses now and you can tax me when i make money later.”

“well. i guess it is true that you can still tax me later, regardless.”

“no. i can’t really think of any good reason why you should let me deduct the costs now.”

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29

Chance of success in this case? Zero
The tax authorities won’t even bother.

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30

Yes. but TE seeks reliable answers and this is imho the only way getting it.

Altought they wont answer the request for a ruling when there is no profound legal argumentation about the desired process/agreement.

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31

It is a pretty apt comparison :joy:

And yet, noone cares how you intend to make money if you start a company, or whether you make money at all (as long as it’s legal).

One could even argue that I have to try to deduct my losses, even if the chances are very slim that the tax office will accept them. If I don’t, I can hear the tax office say in the future: “You didn’t even take yourself seriously during your loss years, why should we?”.

32

Not correct. Hurdles to establish a sole proprietorship as your primary income are very high, you’ll not only have to explain your business but basically prove you already have multiple (potential) customers (funnily enough, the hurdle to be asked to pay AHV on your side business is quite a bit lower). The initial hurdle to establish a company (AG, GmbH) is purposely very low, but, you still have to give an acceptable description of your business nature, and the Handelsregister is supposed to be quite a bit more critical reviewing it compared to a few years ago, e.g. not allowing a blanket broad company purpose. Enforcement is very spotty and soft, but you wouldn’t be able to simply establish a company for wealth management purposes (requires a license) or for day trading (not a business within the meaning of the law, though there are easy ways around this if you really want a company).

Also not really correct. You can opt out of a limited audit, and you don’t really have to share your annual report with anyone, so you may absolutely establish a company and continuously accrue losses. But, generally once you have blown through half of your capitalization (which you already would have in case of a minimally capitalized GmbH) you’d have to act or end up breaching the law. And sure, no plaintiff no judge goes a long way if you’re the sole owner, but that doesn’t make it legal, and eventually the tax department will want some explanations (and obviously don’t try to reclaim VAT with a continuous loss-making company or you end up in the same trouble as people who buy a private plane or vacation home for their exclusive use with a company).

Continuously loss-making companies exist, but they are generally either established, previously successful enterprises eating through their reserves or start-ups with regular capital increases, not day traders going pro on day 1.

But to add something positive: You ruled out a company with your opening post, but are you aware that there is a possibility to retroactively found a company with a first overly long business year of up to 23 months (depending on the canton)? Just saying… if you turn profitable next month, maybe you want to look into that.

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33

You put that money into the local economy.
If you trade, you are not really benefitting swiss economy. Especially if you trade non-swiss securities.

34

Then go start a company instead :wink:

If you make a profit within 7 years, you’ll be able to offset early year losses.

The bonus is that you don’t even need to talk to the tax authorities about it or get a ruling.