What Qualifies You as a "Trader," and How Do You Report Income and Expenses?
If you buy and sell securities, you may qualify for tax status as a ‘trader,’ which importantly may qualify you for certain business tax breaks. The rules governing this status can be confusing, however, making it difficult to determine whether you qualify as a trader, investor, or dealer. Let’s take a closer look at the qualifications for traders as defined by the IRS, as well as how to report income and expenses if qualified.
Qualifications for Traders
The IRS defines a trader in securities by three conditions: someone who “[seeks] to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation”; they must display “substantial” trading activity; and they “must carry on the activity with continuity and regularity.” They recommend individuals unsure of their status take into account “typical holding periods for securities bought and sold”; “the frequency and dollar amount of your trades during the year”; “the extent to which you pursue the activity to produce income for a livelihood”; and “the amount of time you devote to the activity.”
Key to qualifying as a trader is conducting trading activities as a business pursuit, rather than doing so to hold as personal investments, or to earn income from “dividends, interest, or capital appreciation.” Traders are responsible for “[keeping] detailed records” that distinguish which holdings are a part of the trading business rather than investment holdings; securities must be identified as such from the time of acquisition.
Reporting for Traders
Qualifying traders can report business expenses via IRS Form 1040, Schedule C. Commissions and other auxiliary costs relating to trading securities “aren't deductible but must be used to figure gain or loss upon disposition of the securities.” Traders are not required to pay self-employment tax on gains and losses from selling securities.
Another key distinction for traders comes from the use of mark-to-market rules. First, traders must elect to change to mark-to-market accounting via Revenue Procedure 2018-31. Doing so allows traders to make “timely mark-to-market [elections]” by “the original due date… of the tax return for the year prior to the year for which the election becomes effective,” and treat gains and losses upon selling securities “as ordinary gains and losses” using Part II of Form 4797, Sales of Business Property. They must also file Form 3115, Application for Change in Accounting Method, though failure to file this will not “invalidate a timely and valid election.” Traders who decide to no longer use mark-to-market accounting can “file an automatic request for revocation under Revenue Procedure 2018-31, Section 24.02.”
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Contributor
Sergey Savastiouk, Ph.D. has a degree in Applied Mathematics from Moscow University and has extensive experience as an entrepreneur, investor, manager, and mathematician. His professional expertise is in applied mathematics, mathematical modeling, system and pattern analysis, and software and hardware system integration. He has served as the CEO of several hi-tech start-up companies and nonprofit organizations, which has given him proven capabilities in business strategy for high-tech start-up companies, market assessment, company formation, team building, product development, marketing, and sales. He has published numerous articles in journals and magazines on related fields. As a retail investor, he spent 15 years developing his proprietary trading and quantitative algorithms (now Tickeron’s A.I.), which brought him significant returns in trading the stock market. His current work and goal in founding Tickeron is to bring professional, sophisticated stock market analysis capabilities to retail investors via an easy-to-use interface.
Momentum Indicator for SPY turns positive, indicating new upward trend
SPY saw its Momentum Indicator move above the 0 level on September 21, 2026. This is an indication that the stock could be shifting in to a new upward move. Traders may want to consider buying the stock or buying call options. Tickeron's A.I.dvisor looked at 76 similar instances where the indicator turned positive. In 67 of the 76 cases, the stock moved higher in the following days. The odds of a move higher are at 88%.
Technical Analysis (Indicators)
Bullish Trend Analysis
The Moving Average Convergence Divergence (MACD) for SPY just turned positive on October 02, 2026. Looking at past instances where SPY's MACD turned positive, the stock continued to rise in 42 of 52 cases over the following month. The odds of a continued upward trend are 81%.
SPY moved above its 50-day moving average on September 17, 2026 date and that indicates a change from a downward trend to an upward trend.
Following a +1.42% 3-day Advance, the price is estimated to grow further. Considering data from situations where SPY advanced for three days, in 301 of 362 cases, the price rose further within the following month. The odds of a continued upward trend are 83%.
Bearish Trend Analysis
The Stochastic Oscillator may be shifting from an upward trend to a downward trend. In 51 of 70 cases where SPY's Stochastic Oscillator exited the overbought zone, the price fell further within the following month. The odds of a continued downward trend are 73%.
Following a 3-day decline, the stock is projected to fall further. Considering past instances where SPY declined for three days, the price rose further in 50 of 62 cases within the following month. The odds of a continued downward trend are 75%.
SPY broke above its upper Bollinger Band on September 21, 2026. This could be a sign that the stock is set to drop as the stock moves back below the upper band and toward the middle band. You may want to consider selling the stock or exploring put options.
The Aroon Indicator for SPY entered a downward trend on September 21, 2026. This could indicate a strong downward move is ahead for the stock. Traders may want to consider selling the stock or buying put options.
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