What defines an Investor? |
|
An investor buys and sells various stocks, just like a trader might. The difference is, an investor is looking for capital appreciation in the value of his investments, or for income from dividends on such investments. He buys and holds his investments for longer periods of time.
|
|
|
An investor reports the trading activities from his investments on Schedule D of his 1040. Based on the length of hold on his position, the resulting capital gains are then taxed at either long term or short term capital gains rates. An investor may deduct capital losses against his capital gains, and may even report a net capital loss but this net capital loss is limited to $3,000 per year. He may carry forward additional capital losses indefinitely, but cannot carry them back.
|
|
Capital gains and losses are governed by the IRS Publication 550.
|
|
An investor is also subject to the wash sale rules.
|
|
An investor is permitted certain expenses related to conducting his trading/investing. These are reported on Schedule A of 1040. Couple of things to keep in mind - the expense for investor's margin interest cannot exceed his investment income (excess can be carried forward), and Schedule A by definition has a threshhold of 2% of the investor's adjusted gross income. This means, that only amount in excess of this 2% is actually deductible. |
|
See some case law examples of investor vs trader determinations
|
|
