Responsibilities and Regulations for American Day Traders

August 18th, 4:00 pm by Brett Chatz

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The Securities and Exchange Commission, or SEC, says that day traders, or those who make extremely short-term investments in the stock market, account for most of the daily activity in the market.? If you are interested in becoming a day trader, you should be aware of the revised regulations and rules that you will be subject to from earning an income in this way.? It is also important that you learn how to use these regulations to your advantage.

Income Tax Filing

The IRS is fairly lenient in terms of tax deductions if you are a day trader and if your business meets certain standards.? If you are a day trader, you may be able to deduct up to $25,000 for business expenses.? In addition, the IRS also offers 3 options to file your income taxes.? You may file a 1040 like most other people but this is the most expensive choice for you.? You also have the choice to file your expenses from day trading under Schedule C of the 1040 but it is probably best to associate these expenses under a legal business, like a limited liability corporation or LLC.? Also, it is important to be aware of ?wash sales? because you will not be able to deduct these losses from your income taxes.? Essentially, a wash sale means that you are trading a stock for a loss and you then decide to purchase that stock again or a similar stock for 1 year.

Medicare and Social Security

If you are a day trader, you are not required to pay taxes that are used to fund Medicare and Social Security because the IRS does not consider the income made from trading stocks to be an earned income.? Only earned incomes are able to be taxed to support Medicare and Social Security.? There is a caveat, however, if you are day trading as an LLC.? The IRS does consider income made by a corporation that is day trading stocks to be an earned income.? If you are a day trader, it is recommended that you separate your day trading investments from your long-term investments for tax purposes.

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Do you have experience as a Day Trader? Feel free to share your thoughts on this article with other eToro traders. We welcome all feedback.

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Source: http://www.etoro.com/blog/forex-news/18082012/responsibilities-and-regulations-for-day-traders/

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