You can trade stocks as either an investor or a day trader. It is important to note, however, that the two are treated differenly when it comes to taxes. In short, day traders receive more favorable tax treatment compared to investors. For example, a stock investor with a loss can only deduct $3,000 annually from their tax return; with a day trader designation, your annual loss deduction is unlimited and, thus, will drastically reduce your taxable income.

The following is a list of characteristics of a day trader. They…

• expect short term swings in the market and stock price. Their decisions to purchase and sell are based on this data, not pure luck.

• trade regularly and continuously. They expect to spend at least four hours a day in trading, and their trading gain is their primary source of income.

• do not hold stocks for more than 30 days.

Keep in mind that the definition of a day trader is entirely subjective and frequently challenged by the IRS. You will need to keep proper documentation to support your stand and expenses incurred from trading.