Trader Tax Status: How To Qualify
It's not easy to qualify for trader tax status. Learn our golden rules based on trader tax court cases.
Currently, there’s no statutory law with objective tests for how to qualify for TTS. Subjective case law applies. Leading tax publishers have interpreted case law to show a two-part test to qualify for TTS:
- 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.
Our golden rules* for qualification are based on years of experience. The trader has:
- Substantial volume – at least 4 total trades per day, 15 per week, 60 per month (Poppe court)
- Substantial proceeds
- Frequent – a trade execution on 75% of available trading days
- Daily market movements – average holding period under 31 days (Endicott court)
- Intention to run a business and to make “a” living
- Business setup
*We explain these golden rules in-depth in Green’s 2017 Trader Tax Guide - Chapter 1 on Trader Tax Status
What doesn’t qualify?
There are three factors that don’t qualify for trader tax status: (explained in more detail in the guide)
- Automated trading without much involvement by the trader
- Engaging a professional outside investment manager.
- Trading in retirement funds.
These trades should not be included in the golden rule calculations.
For more in-depth information about how to qualify for trader tax status, our golden rules and examples of traders who do and don’t qualify, read Green’s 2017 Trader Tax Guide.