Day Trader? What You Need to Know

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Individuals trading securities have great incentive to classify themselves as traders. By default, buying and selling publicly traded securities is an investment activity, with gains and losses being capital in nature, and related expenses being deducted as itemized deductions.

But what about the downside to investor treatment? Net losses are limited to deducting only $3,000 each year, and the itemized deductions are reduced by 2% of your adjusted gross income and killed off entirely if you are in the alternative minimum tax. Yet net gains are typically all short-term, receiving ordinary income treatment. Furthermore, wash sale rules apply. A wash sale …read more

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