I trade stocks at home full time and have been reporting gains on Sch D in prior years. In 2021 I bought a new computer which I use almost exclusively for that purpose. Can I deduct the cost of it on my taxes? If so, do I need to report my gains as a business income?
You do have that as an alternative. If you want to go through all of these steps, you can deduct your computer.
You do not apply for Trader Tax Status (TTS). You will declare it based on facts and circumstances only. A trader may qualify for TTS one year but not the next.
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.
Traders report their business expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship).
If the nature of your trading activities doesn't qualify as a business, you're considered an investor and not a trader. It doesn't matter whether you call yourself a trader or a day trader, you're an investor.
A taxpayer may be a trader in some securities and may hold other securities for investment. The special rules for traders don't apply to those securities held for investment.
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).
From <IRS Trader Status>
You do have that as an alternative. If you want to go through all of these steps, you can deduct your computer.
You do not apply for Trader Tax Status (TTS). You will declare it based on facts and circumstances only. A trader may qualify for TTS one year but not the next.
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.
Traders report their business expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship).
If the nature of your trading activities doesn't qualify as a business, you're considered an investor and not a trader. It doesn't matter whether you call yourself a trader or a day trader, you're an investor.
A taxpayer may be a trader in some securities and may hold other securities for investment. The special rules for traders don't apply to those securities held for investment.
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).
From <IRS Trader Status>