Trader tax status is the lynchpin for many trader tax breaks, including business expense treatment vs. restricted investment expense treatment; Section 475 MTM ordinary loss treatment vs. restricted ($3,000) capital-loss limitations; and adjusted gross income (AGI) tax deductions, such as health insurance premiums and retirement plan deductions that are not available to investors.

Trader tax status doesn’t apply to everyone, but there are plenty of other good breaks to take advantage of, such as lower 60/40 tax rates for futures and forex traders and exemption from the self-employment (SE) tax (with a few exceptions) on trading gains. With many tax changes looming, 60/40 tax breaks and exemptions from the SE tax are unlikely to be repealed for traders in the first round of tax change coming to Washington in 2009 and 2010.