Investor or trader?
If you’re an investor, any losses you incur are limited to offsetting your gains or up to $3,000. If you’re a trader, your losses are fully deductible against ordinary income. In a recent case, a taxpayer was employed full-time as an engineer earning $75,000 per year. The taxpayer engaged in 323 trades during the first six months of the year, but 303 of those trades occurred during a three-month period. The taxpayer held most of the securities for less than a month. The taxpayer claimed trader status and deducted an $85,000 loss from the trades as a fully deductible ordinary loss incurred in a trade or business. The Court disagreed. It noted in order to qualify as a trader (as opposed to an investor) the taxpayer’s transactions must have constituted a trade or business. In determining whether a taxpayer who manages his own investments is a trader, and thus engaged in a trade or business, relevant considerations are the taxpayer’s investment intent, the nature of the income to be derive
