Tag Archive for Trader in securities

Trader or Investor

Trading and Investing tipsI have another new client who is a day trader and wow is he good at it! Even though he has another job he makes so much more money as a trader that this ultimately is his primary vocation. The following are a few things I’ve learned in helping this new client with his tax obligations.

1. If you are a day trader who has not elected to mark your portfolio to market accounting method under Internal Revenue Code 475 your expenses are deductible on IRS Form 1040 Schedule C.

2. The most commonly referenced Business Code provided on the Schedule C is 523900. Other financial investment activities (including investment advice) and in my opinion is the most appropriate for a person that meets the definition of “day trader” regardless of the accounting method chosen.

3. Regarding expenses, lodging and meals while away from home at investment seminars are allowable deductions assuming you actually qualify as a day trader under IRC Sec. 274(h)(7) which denies a Sec. 212(l) deduction for (non-business related) “expenses allocable to a convention, seminar, or similar meeting.” However, the Tax Court held that a day trader can deduct the cost of a seminar in securities day trading and related travel expenses under IRC Sec. 162. Read More

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Trader In Securities

TaxConnections Picture - Business DiceIf you are an individual who buys and sells securities you may qualify as a “trader in securities,” for tax purposes. This post attempts to explain how traders must report the income and expenses from being in the trading business.

First it is important to understand the meaning of the terms: “security,” “investor,” “dealer,” and “trader,” and the different manner in which income and expenses are reported.

Internal Revenue Code Section 1236 defines “security” basically for all intents and purposes as any share of stock in any corporation, certificate of stock or interest in any corporation, note, bond, debenture, or evidence of indebtedness, or any evidence of an interest in or right to subscribe to or purchase any of the above.

“Investors” typically buy and sell securities and expect income from dividends, interest, or capital appreciation. If you are an investor you tend to buy securities and hold them for personal investment; generally speaking you are not conducting a trade or business. Most investors are individuals. Sales of these securities result in capital gains and losses that must be reported on Form 1040, Schedule D (PDF), Capital Gains and Losses and on Form 8949 (PDF), Sales and Other Dispositions of Capital Assets, as appropriate. Investors are subject to the capital loss limitations described in IRC 1211(b), in addition to the IRC 1091 wash sales rules. Read More

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