Another Day Trader Taxed As An Investor

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Successful stock market day-traders like to be characterized as mere investors for federal income tax purposes - this allows them to pay taxes on their trading gains at preferential capital gains rates. Unsuccessful stock market day traders want to avoid the "investor" label, and instead they want to be characterized as engaged in the trade or business of trading. This is because they don't want capital loss treatment for their trading losses - capital losses can only be used to offset capital gains (except as to $3,000 per year which can be used to offset ordinary income).

Traders that are engaged in the trade or business of trading securities may elect to have the Code Sec. 475(f) mark-to-market rules apply. Under these rules gain or loss is recognized on their securities held at the close of a tax year as if they were sold for their fair market value on the last business day of the tax year. Further, gain or loss is taken into account for the tax year as ordinary income or loss. Being engaged in a trade or business also avoids the expense limits on investors – investor trading expenses can only be deducted to the extent they and any other miscellaneous itemized expenses exceed 2% of adjusted gross income.

Please see full article below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Charles (Chuck) Rubin, Gutter Chaves Josepher Rubin Forman Fleisher P.A. | Attorney Advertising

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