How to Deduct Expenses Incurred in Trading Securities

HOW TO DEDUCT EXPENSES INCURRED IN TRADING SECURITIES

The Keys to Unlocking the Mysterious
and Elusive “Trader” Status

With the advent of the Internet and the unfettered access we now have to national and international financial markets, it’s never been easier to trade securities. With nothing more than a computer, Internet access and some kind of trading platform, anyone can be his own securities broker. The average person can buy stocks, mutual funds, bonds, cryptocurrency, and other financial assets, directly from his home or office, anytime of the day or night.

This access spawned an investment phenomenon known as “day trading.” Such trading is carried out by a “trader.” This is a person who, rather than “investing” in securities for long-term purposes (such as building a retirement nest egg), “trades” securities on a daily basis with the idea of generating current income to pay living expenses. The “trader” buys and sells stocks on a daily basis, trying to capture current income as the stocks fluctuate on a short-term basis.

The difference between an “investor” and a “trader” is significant for federal tax purposes. Most significant is the manner in which the expenses of trading are treated for tax purposes. The thrust of this report is to address, (1) what constitutes a “trader” under federal tax law, (2) the manner in which the income and expenses of a “trader” are treated by the Internal Revenue Service (IRS), and (3) I show you how to adopt and maintain “trader” status to defeat any potential challenge by the IRS.

Want to read the entire newseletter or article?

PTT subscribers get this article and more when they download their April May 2023 issue of Pilla Talks Taxes.  Looking for a single issue?  Contact our office for pricing.  

Looking for a tax pro in your area? Check out our Taxpayers Defense Institute consulting members.