Trader Tax Status: How To Qualify

It's not easy to qualify for trader tax status.

Our golden rules are based on trader tax court cases and our vast experience with IRS and state controversy for traders. The trader:

- Trades full time or part time, for a good portion of the day, almost every day the markets are open…

- Holding period: Is the most important factor, and in the Endicott court, the IRS said average holding period must be 31 days or less. That’s a bright-line test…

- Volume: Makes 720 total trades per year (Poppe court) on an annualized basis. About four trades per day, four days per week, 16 trades per week, and 60 trades a month…

- Frequency: Executes trades on close to four days per week, every week. Around 75% frequency…

- Proceeds: Has proceeds in the millions of dollars per year on equities…

- Hours: Spends more than four hours per day…

- No sporadic lapses: Has few to no sporadic lapses in the trading business during the year…

- Intention: Has the intention to run a business and make a living…

- Operations: Has significant business equipment, education, business services, and a home office…

- Account size: Has a material account size…

Excerpt from Green’s 2019 Trader Tax Guide. There is significant content in Chapter 1 Trader Tax Status for each of the above bullet points. 

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