Traders are those who approach trading investment property as a full-time business: rather than as a hobby and generally receive their primary income from their trading activities. Their trades are frequent, regular, continuous, and substantial. They trade solely for their own accounts. This is not a Registered Investment Advisor (RIA) business.
The IRS typically considers the following factors when determining whether a taxpayer is deemed a trader or an investor.
- The length of the holding period for securities bought and sold
- The frequency and dollar amount of trades made during the year
- The extent to which the taxpayer pursues the activity to produce income for a livelihood
- The amount of time the taxpayer devotes to trading activities
Traders can use the capital gain rates or have the option to make a mark-to-market (MTM) election.
Traders who make an MTM election must recognize gains and losses for each tax year based on increases and decreases in the FMV of their holdings. Losses are ordinary rather than capital, and there is no $3,000 annual limitation.
I make all of the invest choices in one of my accounts; I play with this account semi-actively. But I am an investor. I don’t come anywhere close to being a trader. To be classified as a “Trader” for tax purposes think day-trader as your occupation.