Saturday, July 11, 2009

Investing for yourself is not an indie business.

Dear June,

First of all, I'd like to say that your website is wonderful! Especially the blog section - I ran across your website after doing a search on google about day trading and self employment.

I was in the credit/collections line of work for about 7 years. In 2003, I decided to get into the business of trading stocks. As I learned, trading is not considered self employment ! What would make it self employment and if not what would trading (for yourself) be qualified as ?

Not sure, I've made myself clear, but I consider it to be a home based business.

Thank you for your time.

Dear Rita,

I am not sure what you mean when you say that you are in "the business of trading stocks."

Are you offering your advice and skills to the public? Are clients paying you for your advice? Is your goal to make money from the services you offer? If not then you are not a self-employed in business.

If you are simply trading -- buying and selling stocks for yourself then you are an investor. Any expenses you have, such as a subscription to the Wall Street Journal, are personal investment expenses.

Glad you like my site. Thanks

-- June


June Walker said...

Rita responded:

Hi June,

I trade stocks on my personal accounts for several years. I have listed my position on my resume as: Independent Professional - Securities Trader and removed "Self-employed".

When I started in the business I was trading 2-3 times/daily and therefore, my understanding was that event would qualify me as a day trader ?

I'm not sure, but maybe you could point me in the right direction, whom should I contact to register myself as a sole proprietor, does that make sense ??

Thanks again,


Dear Rita,

No matter how many trades you do each day -- even 100s or 1000s -- if you do them for yourself you are not a self-employed in business.

You are doing personal investing.

-- June

Jack Jensen said...

IRS Pub 550, page 72, specifically addresses trading as a business, separate from being an investor. Could you read that and comment back regarding the differences? I think that would be pertinent to the poster's question. Thanks.

June Walker said...

Thank you, Jack!

I was mistaken. There is a special rule for traders.

IRS says:
Special rules apply if you are a trader in securities in the business of buying and selling securities for your own account.

To be engaged in business as a trader in securities, you must meet all the following conditions.

You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation.

Your activity must be substantial.

You must carry on the activity with continuity and regularity.

The following facts and circumstances should be considered in determining if your activity is a securities trading business.

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.

The amount of time you devote to the activity.

If your trading activities are not a business, you are considered an investor, and not a trader. It does not matter whether you call yourself a trader or a “day trader.”

So, if someone meets all the requirements then he or she is a self-employed in business.

Jack, please send me your address and I'll send you a thank-you gift for alerting me to this.