Continue reading...In this article we take a look at what the IRS requires for you to be called a trader and what forms are required to be completed with your yearly tax returns.
Just because you call yourself a securities trader doesn’t make you one in the eyes of the Internal Revenue Service. In fact, Uncle Sam is predisposed to consider you merely an investor, and thus deny you more favorable tax status, unless you meet a number of tests that are frustratingly open to interpretation.
That’s right: the tax code contains no actual definition of trader status. Instead, the IRS has issued guidelines that the courts have further delineated by case law, most of which denied taxpayer appeals. What we’re left with is a blurred image, like a photograph of a trader taken from a speeding car.
According to the IRS, to qualify as a trader:
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...
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