when are you considered a day trader?

Question

I am curious about the stock market and I want to try it just to have fun, I have a steady income and I don't plan to play with a lot of my money, I still would like to know how to avoid becoming a day trader, I know you have to make 4 or 5 transactions a week to be considered one but I just don't want the extra work of taxes implications and such. Now, if I do make some money ( don't laugh) do I have to include it in my tax declaration and how?. Thanks.

Answer 1

Profits from day trading are treated the same as any short-term capital gains - they are essentially added to your income, and taxed at that rate. At the end of the year, when you're filing your taxes, your broker will send your a profit/loss statement totalling your trades, with which you can declare income. It's all rather cut and dried.

Just to point out, tax considerations should be entirely secondary to actually earning a profit through day trading. It's a lot harder than it looks, since the only ones who do it are the ones who have mastered it - rather like poker players.

Oh, and don't use a discount online broker like Ameritrade or Scottrade - they charge too much and are too slow for day trading. Use a direct-access broker like MB Trading. They charge $0.01 (one penny) per share, and give you direct access to the stock exchanges, rather than direct you through their brokerage.

Answer 2

You are considered a day trader if you make 5 daily round-trip trades in 5 trading days. By round trip, I mean buying and selling the same stock on the same day. If you so 5 of those in 5 trading days or less, you will automatically be considered a day trader by most brokerages and you will have higher margin and/or equity requirements.

All your trades are recorded by your broker and getting them in a spreadsheet is easy. There are two different tax forms to include when filing your taxes, one for short- term capital gains and another for long-term. It's self explanatory, it looks like a spreadsheet and you have to fill out what you bought and what you bought it for and how much you sold it for.

You better be including all your trades in a tax declaration. Brokers do not have to report options trades in the year end tax form they send you. You should still put them in your spreadsheet and report them. The last thing you want is the IRS knocking on your door with a brand new pair of bracelets.

Answer 3

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Answer 4

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Answer 5

Go to Scottrade.com and click on Education. It will let you know the legal definition of a day trader, plus the monetary requirements. Be advised you'll need a margin account of at least $25,000.

Answer 6

A daytrader is someone who trades stocks as his main occupation. In the US any gains or losses need to be figured into your taxable income at the end of each year.

Answer 7

Hi,

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Answer 8

Why don't you worry about that AFTER you had made some money?

I am sure you can hire an accountant with your profits.