Trader Taxes

Trader Tax Status

Trader tax status constitutes business treatment and unlocks meaningful tax benefits for active traders who qualify.

The first step is to determine if you qualify for trader tax status. If you do, you can claim some tax breaks such as business expense treatment after the fact, and elect and setup other breaks like Section 475 MTM and employee-benefit plans on a timely basis. Section 475 business trades are not reported on Form 8949; they use Form 4797 Part II (ordinary gain or loss). Although Section 475 extricates traders from the compliance headaches of Form 8949 (and Section 475 trades are exempt from wash sale rules), it does not change their requirement for line-by-line reporting on Form 4797.

Currently, there’s no statutory law with objective tests for how to qualify for trader. Subjective case law applies and have interpreted case law to show a two-part test to qualify for trader tax status:

  • Taxpayers’ trading activity must be substantial, regular, frequent and continuous.
  • The taxpayer must seek to catch the swings in the daily market movements and profit from these short-term changes rather than profiting from long-term holding of investments.

For more in-depth information about how to qualify for trader tax status, and examples of traders who do and don’t qualify, please read the article regarding most expensive tax errors make by traders & tax preparer. Contact us with any questions.

Contact Us Today

Call us toll-free at 844-386-3829, or use the form on this page to schedule a free consultation. Akram & Associates can help you determine your Trader Tax status, and can assist with any other Fund needs. 

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