How many stock trades would qualify me for "trader" status with the IRS?

Question

And does the IRS consider a "buy and sell" transaction as 1 trade or 2 trades?

Cheers!

Answer 1

The IRS does not specify a particular number of trades per day to be a securities trader. Here's what the IRS has to say:

[Quote]
Special rules apply if you are a trader in securities, in the business of buying and selling securities for your own account. To be engaged in business as a trader in securities, you must meet all of the following conditions:

* You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation.

* Your activity must be substantial, and

* You must carry on the activity with continuity and regularity.

The following facts and circumstances should be considered in determining if your activity is a securities trading business:

* Typical holding periods for securities bought and sold.

* The frequency and dollar amount of your trades during the year.

* The extent to which you pursue the activity to produce income for a livelihood, and

* The amount of time you devote to the activity.
[Unquote]

If you're "dabbling" in the market, you'll be classified as an investor. The key issue with being classified as an investor is that your capital losses are limited to $3,000 per year.

On the other hand, if you typically spend several hours a day, 5 days per week on trading and base your trading activity on the daily movement of stock prices without holding them for more than a couple of days at most and if you derive a significant portion of your income from this activity, THEN you may be classified as a securities trader or "day trader."

Other requirements apply. You must make a "mark to market" election by the original filing deadline (WITHOUT extensions) and also file for a change of accounting method on Form 3115. Mark to Market means that an securities in your portfolio must be re-priced to market value on the last day of the tax year and any gains or losses on those securities taken at year-end.

The advantage of being classified as a securities trader is that you use Schedule C to account for your profit and are not subject to the capital loss limitations that an investor is. You must also pay Self-Employment taxes on your net profit, something that investors don't have to do.

The rules are complicated. See IRS Tax Topic 429 http://www.irs.gov/taxtopics/tc429.html and IRS Pub 550 http://www.irs.gov/publications/p550/index.html for more information. What I've discussed here only scratches the surface

Answer 2

Penny stocks are loosely categorized companies with share prices of below $5 and with market caps of under $200 million. They are sometimes referred to as "the slot machines of the equity market" because of the money involved. There may be a good place for penny stocks in the portfolio of an experienced, advanced investor, however, if you follow this guide you will learn the most efficient strategies https://tr.im/ed075

Answer 3

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