{"id":175800,"date":"2020-09-09T18:45:00","date_gmt":"2020-09-09T22:45:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/trading-lessons\/tax-status-trader-or-investor\/"},"modified":"2026-06-26T14:52:21","modified_gmt":"2026-06-26T18:52:21","slug":"tax-status-trader-or-investor","status":"publish","type":"trading-lessons","link":"https:\/\/www.interactivebrokers.com\/campus\/trading-lessons\/tax-status-trader-or-investor\/","title":{"rendered":"Tax Status \u2013 Trader or Investor?"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><strong>New to Interactive Brokers?<\/strong><\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button has-custom-width wp-block-button__width-50\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/ndcdyn.interactivebrokers.com\/mkt\/?src=taUSTAXAcc&amp;url=%2FUniversal%2FApplication\" target=\"_blank\" rel=\"noreferrer noopener\">Open Account<\/a><\/div>\n<\/div>\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n<h3>Trader or investor<\/h3>\nThis module is not a comprehensive look at this topic which is complex. It is intended as an overview. If\nyou consider yourself a trader for tax purposes, a conversation covering the requirements in detail\nshould be held with your tax advisor.\n<h4>Investor<\/h4>\nMany of us are investors. We trade our own accounts sporadically and do not actively participate in the\nmarket daily. Managing our investments is not a primary activity or even a major activity for us.\nGenerally, investors hold securities for a longer time period and look to generate income from\ndividends, interest and capital gains. If you are more active in the marketplace than occasional trading\nthen you may be a trader.\n<h4>Trader<\/h4>\nA trader is a person for whom investing and trading in the market for their own account is a trade or\nbusiness. Generally, a trader participates in the marketplace daily and may hold positions for a short\ntime.\n<h4>Requirements to be a Trader<\/h4>\nThe IRS has laid out specific conditions to be met to be considered a trader in securities. Although\nseemingly fairly simple, multiple court cases have further defined the conditions making them more\ncomplex than they appear. IRS topic 429 &#8211; available on IRS.gov &#8211; gives a readable explanation of the\nbasics of being a trader.\n\nThere are three conditions that must be met for the IRS to consider a taxpayer as engaged in the\nbusiness of being a trader.\n\n1) A trader must seek to profit from daily market movements in the prices of securities, and not\nfrom dividends, interest or capital appreciation\n2) A trader&#8217;s activity must be substantial\n3) A trader must carry on the activity with continuity and regularity\n<h4>Facts and circumstances<\/h4>\nFacts and circumstances play a large role in the determination of a taxpayer&#8217;s status as a trader. The IRS\n&#8211; and the courts &#8211; consider:\n\n\u2022 Typical holding periods for securities bought and sold;\n\u2022 Frequency and dollar amount of your trades during the year;\n\u2022 Extent to which you pursue the activity to produce income for a livelihood; and\n\u2022 Amount of time devoted to the activity.\n\nIf the nature of your trading activities doesn&#8217;t meet these qualifications, then you are an investor.\n<h4>Tax Advantages<\/h4>\nThe primary advantage of being a trader is the deduction of investment expenses such as account fees\nand stock borrow fees. Beginning with 2018, a trader is also eligible for a qualified business deduction\nunder the new section 199A of the tax code. This deduction, subject to certain income limits, allows for\na 20% deduction of business income.\n\nTraders may also hold securities for investment &#8211; or over a longer term. However, detailed records must\nbe kept. A trader can also choose to use mark to market rules. Investors do not have this option. The\nmark to market rules recognize gain and loss as business income daily &#8211; not just when a security is sold.\nThis is an annual election that must be made on a timely basis with the IRS. The election for the current\nyear must be made by the due date &#8211; without extension &#8211; of the prior year&#8217;s return &#8211; or 4\/15.\n<h4>Audit Considerations<\/h4>\nMuch of the law surrounding the meeting of the requirements to be a trader comes from tax court and\ncourt cases when the IRS has challenged a taxpayer as to their status as a trader. Obviously, this cannot\nbe summarized in the time here \u2013 which makes it essential that you discuss designating yourself as a\ntrader with a tax professional familiar with the area.\n\nNote that the courts have struck down arguments that an individual was a trader when the taxpayer\nonly made a few (10) trades a day, as well as when the taxpayer traded actively only a few days a week\n(or month).\n\nThink about your activity carefully and be certain that you meet the requirements. This is an area that\nthe IRS views as extremely auditable (meaning they believe that there is underpaid tax to be collected)\nso approach the decision to report as a trader with good documentation of your activities and\nanticipating that the likelihood of being audited will increase.\n<h4>Section 199A<\/h4>\nAs mentioned before, since being a trader is considered a trade or business under the tax code, the new\n(late 2017) Section 199A allowing for up to a 20% reduction of business income apply.","protected":false},"excerpt":{"rendered":"<p>The main topics of this lesson are: Trader or Investor?;  Requirements to be a Trader;  Facts and Circumstances;  Tax Advantages;  Audit Considerations; and Section 199A. For this lesson refer to the Study Notes and watch the video for a synopsis.<\/p>\n","protected":false},"author":929,"featured_media":221450,"parent":0,"comment_status":"open","ping_status":"open","template":"","meta":{"_acf_changed":false,"footnotes":""},"contributors-categories":[13576],"traders-academy":[13125,13128,13132],"class_list":["post-175800","trading-lessons","type-trading-lessons","status-publish","has-post-thumbnail","contributors-categories-interactive-brokers","traders-academy-beginner-trading","traders-academy-level","traders-academy-trading-lesson"],"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v28.2) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Archives | Traders&#039; Academy | IBKR Campus<\/title>\n<meta name=\"description\" content=\"The main topics of this lesson are: Trader or Investor?; Requirements to be a Trader; Facts and Circumstances; Tax Advantages; Audit Considerations; and...\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.interactivebrokers.com\/campus\/wp-json\/wp\/v2\/trading-lessons\/175800\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Tax Status \u2013 Trader or Investor?\" \/>\n<meta property=\"og:description\" content=\"The main topics of this lesson are: Trader or Investor?; Requirements to be a Trader; Facts and Circumstances; Tax Advantages; Audit Considerations; and Section 199A.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.interactivebrokers.com\/campus\/trading-lessons\/tax-status-trader-or-investor\/\" \/>\n<meta property=\"og:site_name\" content=\"IBKR Campus US\" \/>\n<meta property=\"article:modified_time\" content=\"2026-06-26T18:52:21+00:00\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Tax Status \u2013 Trader or Investor?\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\n\t    \"@context\": \"https:\\\/\\\/schema.org\",\n\t    \"@graph\": [\n\t        {\n\t            \"@type\": \"WebPage\",\n\t            \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/trading-lessons\\\/tax-status-trader-or-investor\\\/\",\n\t            \"url\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/trading-lessons\\\/tax-status-trader-or-investor\\\/\",\n\t            \"name\": \"Tax Status \u2013 Trader or Investor?\",\n\t            \"isPartOf\": {\n\t                \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/#website\"\n\t            },\n\t            \"primaryImageOfPage\": {\n\t                \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/trading-lessons\\\/tax-status-trader-or-investor\\\/#primaryimage\"\n\t            },\n\t            \"image\": {\n\t                \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/trading-lessons\\\/tax-status-trader-or-investor\\\/#primaryimage\"\n\t            },\n\t            \"thumbnailUrl\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/wp-content\\\/uploads\\\/sites\\\/2\\\/2020\\\/09\\\/mqdefault-17.jpg\",\n\t            \"datePublished\": \"2020-09-09T22:45:00+00:00\",\n\t            \"dateModified\": \"2026-06-26T18:52:21+00:00\",\n\t            \"description\": \"The main topics of this lesson are: Trader or Investor?; Requirements to be a Trader; Facts and Circumstances; Tax Advantages; Audit Considerations; and Section 199A.\",\n\t            \"breadcrumb\": {\n\t                \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/trading-lessons\\\/tax-status-trader-or-investor\\\/#breadcrumb\"\n\t            },\n\t            \"inLanguage\": \"en-US\",\n\t            \"potentialAction\": [\n\t                {\n\t                    \"@type\": \"ReadAction\",\n\t                    \"target\": [\n\t                        \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/trading-lessons\\\/tax-status-trader-or-investor\\\/\"\n\t                    ]\n\t                }\n\t            ]\n\t        },\n\t        {\n\t            \"@type\": \"ImageObject\",\n\t            \"inLanguage\": \"en-US\",\n\t            \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/trading-lessons\\\/tax-status-trader-or-investor\\\/#primaryimage\",\n\t            \"url\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/wp-content\\\/uploads\\\/sites\\\/2\\\/2020\\\/09\\\/mqdefault-17.jpg\",\n\t            \"contentUrl\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/wp-content\\\/uploads\\\/sites\\\/2\\\/2020\\\/09\\\/mqdefault-17.jpg\",\n\t            \"width\": 320,\n\t            \"height\": 180,\n\t            \"caption\": \"Tax Status \u2013 Trader or Investor?\"\n\t        },\n\t        {\n\t            \"@type\": \"BreadcrumbList\",\n\t            \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/trading-lessons\\\/tax-status-trader-or-investor\\\/#breadcrumb\",\n\t            \"itemListElement\": [\n\t                {\n\t                    \"@type\": \"ListItem\",\n\t                    \"position\": 1,\n\t                    \"name\": \"Academy Lessons\",\n\t                    \"item\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/trading-lessons\\\/\"\n\t                },\n\t                {\n\t                    \"@type\": \"ListItem\",\n\t                    \"position\": 2,\n\t                    \"name\": \"Tax Status \u2013 Trader or Investor?\"\n\t                }\n\t            ]\n\t        },\n\t        {\n\t            \"@type\": \"WebSite\",\n\t            \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/#website\",\n\t            \"url\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/\",\n\t            \"name\": \"IBKR Campus US\",\n\t            \"description\": \"Financial Education from Interactive Brokers\",\n\t            \"publisher\": {\n\t                \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/#organization\"\n\t            },\n\t            \"potentialAction\": [\n\t                {\n\t                    \"@type\": \"SearchAction\",\n\t                    \"target\": {\n\t                        \"@type\": \"EntryPoint\",\n\t                        \"urlTemplate\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/?s={search_term_string}\"\n\t                    },\n\t                    \"query-input\": {\n\t                        \"@type\": \"PropertyValueSpecification\",\n\t                        \"valueRequired\": true,\n\t                        \"valueName\": \"search_term_string\"\n\t                    }\n\t                }\n\t            ],\n\t            \"inLanguage\": \"en-US\"\n\t        },\n\t        {\n\t            \"@type\": \"Organization\",\n\t            \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/#organization\",\n\t            \"name\": \"Interactive Brokers\",\n\t            \"alternateName\": \"IBKR\",\n\t            \"url\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/\",\n\t            \"logo\": {\n\t                \"@type\": \"ImageObject\",\n\t                \"inLanguage\": \"en-US\",\n\t                \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/#\\\/schema\\\/logo\\\/image\\\/\",\n\t                \"url\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/wp-content\\\/uploads\\\/sites\\\/2\\\/2024\\\/05\\\/ibkr-campus-logo.jpg\",\n\t                \"contentUrl\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/wp-content\\\/uploads\\\/sites\\\/2\\\/2024\\\/05\\\/ibkr-campus-logo.jpg\",\n\t                \"width\": 669,\n\t                \"height\": 669,\n\t                \"caption\": \"Interactive Brokers\"\n\t            },\n\t            \"image\": {\n\t                \"@id\": \"https:\\\/\\\/ibkrcampus.com\\\/campus\\\/#\\\/schema\\\/logo\\\/image\\\/\"\n\t            },\n\t            \"publishingPrinciples\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/about-ibkr-campus\\\/\",\n\t            \"ethicsPolicy\": \"https:\\\/\\\/www.interactivebrokers.com\\\/campus\\\/cyber-security-notice\\\/\"\n\t        }\n\t    ]\n\t}<\/script>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"Archives | Traders' Academy | IBKR Campus","description":"The main topics of this lesson are: Trader or Investor?; Requirements to be a Trader; Facts and Circumstances; Tax Advantages; Audit Considerations; and...","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.interactivebrokers.com\/campus\/wp-json\/wp\/v2\/trading-lessons\/175800\/","og_locale":"en_US","og_type":"article","og_title":"Tax Status \u2013 Trader or Investor?","og_description":"The main topics of this lesson are: Trader or Investor?; Requirements to be a Trader; Facts and Circumstances; Tax Advantages; Audit Considerations; and Section 199A.","og_url":"https:\/\/www.interactivebrokers.com\/campus\/trading-lessons\/tax-status-trader-or-investor\/","og_site_name":"IBKR Campus US","article_modified_time":"2026-06-26T18:52:21+00:00","twitter_card":"summary_large_image","twitter_title":"Tax Status \u2013 Trader or Investor?","twitter_misc":{"Est. reading time":"4 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/ibkrcampus.com\/campus\/trading-lessons\/tax-status-trader-or-investor\/","url":"https:\/\/ibkrcampus.com\/campus\/trading-lessons\/tax-status-trader-or-investor\/","name":"Tax Status \u2013 Trader or Investor?","isPartOf":{"@id":"https:\/\/ibkrcampus.com\/campus\/#website"},"primaryImageOfPage":{"@id":"https:\/\/ibkrcampus.com\/campus\/trading-lessons\/tax-status-trader-or-investor\/#primaryimage"},"image":{"@id":"https:\/\/ibkrcampus.com\/campus\/trading-lessons\/tax-status-trader-or-investor\/#primaryimage"},"thumbnailUrl":"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2020\/09\/mqdefault-17.jpg","datePublished":"2020-09-09T22:45:00+00:00","dateModified":"2026-06-26T18:52:21+00:00","description":"The main topics of this lesson are: Trader or Investor?; Requirements to be a Trader; Facts and Circumstances; Tax Advantages; Audit Considerations; and Section 199A.","breadcrumb":{"@id":"https:\/\/ibkrcampus.com\/campus\/trading-lessons\/tax-status-trader-or-investor\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/ibkrcampus.com\/campus\/trading-lessons\/tax-status-trader-or-investor\/"]}]},{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/ibkrcampus.com\/campus\/trading-lessons\/tax-status-trader-or-investor\/#primaryimage","url":"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2020\/09\/mqdefault-17.jpg","contentUrl":"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2020\/09\/mqdefault-17.jpg","width":320,"height":180,"caption":"Tax Status \u2013 Trader or Investor?"},{"@type":"BreadcrumbList","@id":"https:\/\/ibkrcampus.com\/campus\/trading-lessons\/tax-status-trader-or-investor\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Academy Lessons","item":"https:\/\/ibkrcampus.com\/campus\/trading-lessons\/"},{"@type":"ListItem","position":2,"name":"Tax Status \u2013 Trader or Investor?"}]},{"@type":"WebSite","@id":"https:\/\/ibkrcampus.com\/campus\/#website","url":"https:\/\/ibkrcampus.com\/campus\/","name":"IBKR Campus US","description":"Financial Education from Interactive Brokers","publisher":{"@id":"https:\/\/ibkrcampus.com\/campus\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/ibkrcampus.com\/campus\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/ibkrcampus.com\/campus\/#organization","name":"Interactive Brokers","alternateName":"IBKR","url":"https:\/\/ibkrcampus.com\/campus\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/ibkrcampus.com\/campus\/#\/schema\/logo\/image\/","url":"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/05\/ibkr-campus-logo.jpg","contentUrl":"https:\/\/www.interactivebrokers.com\/campus\/wp-content\/uploads\/sites\/2\/2024\/05\/ibkr-campus-logo.jpg","width":669,"height":669,"caption":"Interactive Brokers"},"image":{"@id":"https:\/\/ibkrcampus.com\/campus\/#\/schema\/logo\/image\/"},"publishingPrinciples":"https:\/\/www.interactivebrokers.com\/campus\/about-ibkr-campus\/","ethicsPolicy":"https:\/\/www.interactivebrokers.com\/campus\/cyber-security-notice\/"}]}},"_links":{"self":[{"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/trading-lessons\/175800","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/trading-lessons"}],"about":[{"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/types\/trading-lessons"}],"author":[{"embeddable":true,"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/users\/929"}],"replies":[{"embeddable":true,"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/comments?post=175800"}],"version-history":[{"count":0,"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/trading-lessons\/175800\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/media\/221450"}],"wp:attachment":[{"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/media?parent=175800"}],"wp:term":[{"taxonomy":"contributors-categories","embeddable":true,"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/contributors-categories?post=175800"},{"taxonomy":"traders-academy","embeddable":true,"href":"https:\/\/ibkrcampus.com\/campus\/wp-json\/wp\/v2\/traders-academy?post=175800"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}