Considerations
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To determine if you qualify as a "Trader" versus an "Investor", follow the guidelines determined by several court cases addressing this issue.
According to SmartMoney, you are a trader if:
You spend more than 20 hours a week trading. Preferably, you don't have a regular full-time job.
You have established a regular and continuous pattern of making lots of trades. Probably multiple buys and sells for every day the market is open. Vacations are understandable, but lapses of weeks or months without trading activity will immediately move you from "Trader" to "Investor" status.
Your goal is to profit from short-term market swings rather than from long-term gains or dividend income. What is profiting from short-term market swings? Getting in and out of a position on the same day or within a week. Holdings stocks for a month or two removes your chances of claiming trader status.
You don't use the Small order Execution System (SOES) for your trades. Only amateur investors are allowed to use SOES and by using SOES, you are telling the SEC you are an amateur while trying to tell the IRS you are a pro trader.
Deduct all your investing expenses on Schedule C, like any other self-employed individual. This eliminates the need to claim these expenses on Schedule A and eliminates the limitation of only writing off the amount that exceeds 2% of your gross income. Furthermore, Schedule C write-offs reduce your adjusted gross income, which makes it more likely that you can fully deduct all your personal exemptions.
Deduct your margin account interest on Schedule C.
Write-off up to $25,000 a year for equipment used in your trading activities (computers, magazines, Bloomberg, fax machines, office material) under Section 179.
Exempt yourself from wash-sale rules if you elect mark-to-market with the IRS.
Deduct an unlimited amount of losses versus the investor's limit of $3,000 in capital losses.
Is it possible to qualify as both a "Trader" and an "Investor?"
Sure is! The trick is to handle your "Trader" investments differently than your "Investor" investments. In order to treat investments differently, you must separate your long-term holdings (Investor Status) from short-term holdings (Trader Status) by identifying them as such in your records on the day you buy the holding. It would help your claim as both Trader and Investor status if you actually created a separate account. That is, a trader account and an investor account.