You need to make your mind up whether you are an investor or a trader. Just because they both deal with stock trades, it doesn't mean you can opt for the one in any given year that benefits you. It is possible to hold certain stocks long term for investment while having another portfolio for short term trades.
Traders seek to produce income for a livelihood and devoted significant time to running their business. Traders can choose to use the mark-to-market rules, investors can't. Do you actually have a business that involves stock trades?
Special rules apply if you're a trader in securities, in the business of buying and selling securities for your own account. The law considers this to be a business. To be engaged in business as a trader in securities, you must meet all of 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; and
- 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; and
- The amount of time you devote to the activity
If the nature of your trading activities doesn't qualify as a business, you're considered an investor and not a trader. A trader must keep detailed records to distinguish the securities held for investment from the securities in the trading business. The securities held for investment must be identified as such in the trader's records on the day he or she acquires them (for example, by holding them in a separate brokerage account).
