Number of trades required to qualify as an active trader?

Forum|Forum|7 years ago
June 4, 2019
1 reply
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Is there a particular number of trades in stocks or similar securities required to qualify as a Trader, where expenses of the trading business are shown on Schedule C ?
Once I do qualify as a Trader, what expenses can be shown that otherwise would not be eligible?

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Best answer by LudwigVan_fan

I'm not aware of any "number" of trades that would make put a person in the trade or business of securities for their own account. Here is a link to some guidelines:

https://www.irs.gov/taxtopics/tc429.html

It is a high bar to be considered in the trade or business of dealing in securities for your own behalf. Here is a case where the taxpayer was found NOT to be in the trade or business. Read it and compare to your own circumstances

An investor was not a trader in securities because his trading activities did not have the frequency, continuity, and regularity to constitute a trade or business and the long holding periods showed that he was not seeking to profit from the swings in the daily market. Endicott v. Comm'r, T.C. Memo. 2013-199 (8/28/13).

There is no "bright line test"...so be informed and beware that it is a high hurdle to be considered in the trade or business of securities trader for your own account.

LudwigVan_fanAnswer

Employee

I'm not aware of any "number" of trades that would make put a person in the trade or business of securities for their own account. Here is a link to some guidelines:

https://www.irs.gov/taxtopics/tc429.html

It is a high bar to be considered in the trade or business of dealing in securities for your own behalf. Here is a case where the taxpayer was found NOT to be in the trade or business. Read it and compare to your own circumstances

An investor was not a trader in securities because his trading activities did not have the frequency, continuity, and regularity to constitute a trade or business and the long holding periods showed that he was not seeking to profit from the swings in the daily market. Endicott v. Comm'r, T.C. Memo. 2013-199 (8/28/13).

There is no "bright line test"...so be informed and beware that it is a high hurdle to be considered in the trade or business of securities trader for your own account.

**Disclaimer: Effort has been made to offer correct information; but due to the discussion forum limitations, the poster disclaims any legal responsibility for the accuracy of the poster's response**

U

user2010Author

Employee

The above is helpful and appreciated. I'm hoping to see an example of a case that shows where the line is drawn, on both sides of the line. (In Endicott expenses were denied. There's likely another case where expenses were approved.) In other words, where an amount (6 figures) was allocated for active trading, and traded for profit, maybe sometimes with a gain, and other times with a loss. A trading business should have deductions for active research expense such as that conducted at a professional convention. That includes travel. I have done well in the stock market with information discovered at a convention 1000 miles away. At the convention I see others who buy products at wholesale, sell them at a profit or loss, and deduct the convention expenses (among other expenses) on their taxes. I prefer trading stocks to buying and selling merchandise.