Question

Robert Small is a dentist. Tired of looking in people’s mouths, he attends a Wade Cook seminar on “Two Bad Years and Up We Go.” He becomes fascinated with Cook’s stock market strategies. Small begins to give up his dentistry practice, and within a year he is a full-time day trader on Wall Street. In 2020, Small has substantial ordinary income from the sale of his dental practice and suffers significant losses from his day trading. He consults you about deducting his losses and expenses from day trading against his ordinary income. What is your advice? Please use code sections or IRS revenue rulings for support. (Robert is a citizen of the United Sates)

Answer 1

According to IRS revenue rulings, Qualified business Income are available to deduct any loss earned from business or profession. Losses earned from day trade cannot be deducted from Qualified business income. So any income derived after deducting day trade losses are void. Any Assessee cannot reduce its income deducting Day trade losses.

Thus, in this case Mr Robert has earned losses out of Day Trade at wall street cannot be deducted from the income out of dental practice, though it is earned after closing the existing proffesion it would not be allowed to suppress income by deducting trade losses. Day trade losses are exceptions to qualified business income.