While many people consider themselves day traders, it is much more difficult to convince the Internal Revenue Service of the same thing, according to Forbes' Peter Reilly.
Many people are successful day traders before they make it a full-time job. The problem is a large portion of these day traders do not fit the descriptions that allow them to earn the tax treatment that traders typically receive, according to the news source. For example, those who qualify can deduct some of their operating expenses. But the IRS' guidelines remain unclear.
One man was not able to become an official trader by the IRS, even though he was moving millions of dollars day trading on the side, according to the news source. The federal government felt that he was not trading enough to be considered for such a title.
In order to make life much easier for those who participate in day trading for a living, qualifying as a trader with the IRS may be key. Despite the need for this, requirements and regulations are quite confusing - and rather vague. In order to remove as much doubt as possible, and to try to improve a person's day trading standing in the eyes of the government, it could be a great plan to incorporate a day trading company as a corporation or a LLC. This may be the difference when trying to qualify.
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