The Latest on DayTrader Status and the IRS

Published: Mon, 04/29/19


To be engaged in business as a trader in securities” the taxpayer must meet all of the following tests:
* The taxpayer must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation;
* The activity must be substantial; and
* The activity must be carried on with continuity and regularity.
The following facts and circumstances must be considered in determining whether the activity is a securities trading business:
* Typical holding periods for securities bought and sold;
* The frequency and dollar amount of trades during the year;
* The extent to which the taxpayer pursues the activity to produce income for his or her livelihood; and
* The amount of time devoted to the activity.

Notes from CK Accounting Tax Service, LLC:

Continuity and regularity meaning throughout the fiscal year, not just a few months out of the year with substantial trades.  Holding periods need to be short term, if there are long term investments, they should be in a separate account. Day trading must be the primary trade or business of the taxpayer and not a side business and the time devoted to trading needs to be substantial.  Traders are advised to keep records of how much time they spend analyzing records and looking at possible trades.  This is especially important for the days where the trader did not make any trades.  We used to recommend that traders make at least one trade per day but now there are bots available to make trades on behalf of the individual. 
The IRC section 475 election is due the same day as the individual tax return is due, not including extension.  There are exceptions to this as if the taxpayer forms a business to operate the trading business, the election can be made through the business.  The IRS also offers Sec. 9100 relief if the due date for the individual election was missed. 


CK Accounting Tax Service, LLC has the ability to work with clients no matter where they are located. We can accommodate your business and individual tax needs. We can also provide consultation to your tax accountant regarding the different issues that apply to day traders.

https://ckaccountingandtaxation.com