IF YOU MAKE A LOT OF TRADES PER YEAR STOP AND READ THIS
So my CPA told me this year that I would qualify for "Active Trader Status"
If you've never heard of it before this can be massive for you and your portfolio when filing taxes... heres a quick breakdown below of how you can qualify and what it can do for you!
Active Trader Status (or Trader Tax Status - TTS) is an IRS designation for individuals who trade securities with high volume, frequency, and regularity, allowing them to treat trading as a business. Benefits include deducting expenses on Schedule C (like home office, software, and subscriptions) and potentially electing Mark-to-Market accounting to bypass wash sale rules and the $3,000 capital loss limit
Key Requirements to Qualify (Based on IRS & Court Guidelines):
Substantial Activity: High volume and frequency, typically interpreted as roughly 720+ trades per year.
Continuity/Regularity: Trading on most days the market is open (roughly 4 days/week or 75%+ of market days).
Time Commitment: Substantial time dedicated to trading, often considered full-time or nearly so (4+ hours/day).
Intent: Aiming to profit from short-term daily market movements, not long-term appreciation or dividends.
Average Holding Period: Generally, holding periods should be under 31 days to distinguish from investing.
Key Benefits & Considerations:
Deduct Expenses: Trading expenses are deductible business expenses (Schedule C), rather than restricted investment expenses.
Mark-to-Market (Section 475): Allows traders to treat gains/losses as ordinary income, removing the $3,000 limitation on capital loss deductions.
No Wash Sales: Section 475 election exempts traders from the wash sale rule, which otherwise defers losses on similar securities bought within 30 days.
How to Apply: There is no official form to request TTS. It is claimed by Filing Schedule C and reporting activity as a business. The MTM election requires a timely election statement by April 15 of the current tax year.