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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SPY's RSI Indicator recovers from oversold territory
The RSI Indicator for SPY moved out of oversold territory on March 14, 2025. This could be a sign that the stock is shifting from a downward trend to an upward trend. Traders may want to buy the stock or call options. The A.I.dvisor looked at 19 similar instances when the indicator left oversold territory. In of the 19 cases the stock moved higher. This puts the odds of a move higher at .
Technical Analysis (Indicators)
Bullish Trend Analysis
The Momentum Indicator moved above the 0 level on March 24, 2025. You may want to consider a long position or call options on SPY as a result. In of 70 past instances where the momentum indicator moved above 0, the stock continued to climb. The odds of a continued upward trend are .
The Moving Average Convergence Divergence (MACD) for SPY just turned positive on March 21, 2025. Looking at past instances where SPY's MACD turned positive, the stock continued to rise in of 53 cases over the following month. The odds of a continued upward trend are .
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where SPY advanced for three days, in of 369 cases, the price rose further within the following month. The odds of a continued upward trend are .
SPY may jump back above the lower band and head toward the middle band. Traders may consider buying the stock or exploring call options.
Bearish Trend Analysis
The Stochastic Oscillator demonstrated that the ticker has stayed in the overbought zone for 3 days. The longer the ticker stays in the overbought zone, the sooner a price pull-back is expected.
SPY moved below its 50-day moving average on February 24, 2025 date and that indicates a change from an upward trend to a downward trend.
The 10-day moving average for SPY crossed bearishly below the 50-day moving average on March 04, 2025. This indicates that the trend has shifted lower and could be considered a sell signal. In of 14 past instances when the 10-day crossed below the 50-day, the stock continued to move higher over the following month. The odds of a continued downward trend are .
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 of 62 cases within the following month. The odds of a continued downward trend are .
The Aroon Indicator for SPY entered a downward trend on March 24, 2025. 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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