Featured Article

Introducing OTA Tax Pros

Michael Atias
Director of Tax Services, Instructor

Online Trading Academy has educated thousands of people on how to trade the markets and now is launching OTA Tax Pros, Inc. to serve all traders in their complex tax needs. We are excited to provide exceptional tax service to all traders. We will provide you with strategies and techniques that will increase your cash flow by reducing your largest expense as a trader – TAXES!

Do I meet the guidelines for trader status or trader in securities?

The natural inclination is to think that all day traders can file their taxes with the status of trader in securities. Unfortunately, the answer is not as simple. The Internal Revenue Code (IRC) completely lacks guidance on the requirements needed to meet trader status. Instead, we must look to tax court cases dating all the way to the 1940’s for guidance. From tax court cases, we can identify two tests that must both be met in order to qualify for trader tax status:

  1. The taxpayer must seek to profit from daily market movements in the price of securities rather than profiting from dividends, interest or capital appreciation.
  2. The taxpayer’s trading must be substantial, regular, frequent and continuous.

The following factors should also be considered in determining if your activity is a securities trading business:

  • Typical holding period 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.
  • The amount of time you devote to the activity.

As you can see, the biggest problem with trader status is the absence of a clear definition. There are no precise standards telling us when trades are considered short-term, or how large a volume you need, or how long a period you must continue the activity to be considered a trader. Sometimes it’s easy to determine that someone is or is not a trader, but in many cases, the answer isn’t clear. You need to seek professional advice to determine your trader status. Remember, if you are not qualified as a trader in securities, you are considered to be an investor even if you call yourself a day trader.

“Trader in securities” tax benefits

“Trader in securities” status allows you to treat your trading like a business and deduct all necessary and ordinary business expenses. You are also able to elect the Mark-to-Market method of accounting, allowing you to overcome the $3000 capital loss limitation per year and eliminate all wash sales. The result is clear – reducing your tax liability substantially. You need to seek professional advice to determine your trader status.

Additional Tax Tip

Buy a house – you will be able to deduct mortgage interest and property tax as an itemized deduction as well as interest on home equity loans (up to $100,000). The biggest home-related tax benefit, however, could come when you sell your home. You can exclude up to $250,000 in profit (or $500,000 if married filing jointly) from the sale of your principal home. Currently, the federal long-term capital gains tax rate is 15%, so potentially, you can save up to $75,000.

Be sure to visit our OTA Tax Pros website to find out how you can attend a free tax planning webinar.

– Michael Atias


This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.