Anyone on here ever filed as a professional trader?

[Roland of Gilead]

I have been trading a bit for the past 20 years, working a $1700 retirement IRA rollover from a former employer into a $95,000 account (now half IRA half Roth)

In a taxable account that contains about $100,000, I have been generating around $20,000 to $40,000 a year the past 4 years which I have been withdrawing and using as our living expenses, not touching our 401K, Roths or main taxable accounts, which are all in index funds.

The $20,000 to $40,000 is usually short term capital gains and is taxed like ordinary income, which is mostly fine since we are a married couple with no other income (so taxes are low or non existent depending on the size of the year).

My trading is not super consistent, which is one red flag.   I might trade in and out of a few certain stocks for several weeks while they are volatile, then go sailing or RV'ing for a month while the money sits in cash.   I might do a covered call a couple months out and wait on assignment to free up the cash for a future trade.

I do spend time reading financials, 10K's, a lot of biotech articles.   Enough time that I really feel like I am somewhat earning the income.

So I want this income to count as earned income so I can fund both of our IRAs.

Considering that I have already pulled out over $120K in cash from a $100,000 trading account (which currently has $110,000 in it), I think there is some possibility of success as long as conforming to professional trader status doesn't horribly affect the way I trade.

Anyway, I would be interested in hearing if any of you have ever tried to qualify as a professional trader with the associated tax benefits and how it worked/is working out.   I kind of have my doubts that I will find anyone on here who has done this as the first reaction has to be it is not the MMM way.

[Toad]

I have looked into claiming the trader tax status before although have never done it myself yet since I have never made enough to bother with it.  Some keys that might make you ineligible would be: frequency of trading and days traded in the market.  From what you describe it sounds like you are implementing swing trading and you do not do it year round.  If I remember correctly you need to generate something like 4 trades a day (buy and sell the same day counts for 2) and need to trade somewhere around 75%-80% of the total days the market is open in the year.  Easy if you are day-trading, but pretty much impossible any other way.

If I were you, I would be looking at setting up a LLC, S corp., or C corp. for this since then you would not need to meet all the criteria but could still claim it as income.  I really didn't dig into this much since I am far from needing to at this point.

[sokoloff]

Here’s a pretty decent plain-English article: https://www.forbes.com/sites/greatspeculations/2017/06/07/how-to-become-eligible-for-trader-tax-status-benefits/#2a72402a3e35

My take is OP isn’t close to qualifying.

[Roland of Gilead]

I have been playing around a little bit this week, doing some slightly more frequent swing trading, but I do not think I am quite there yet on the frequency the IRS requires.

On the plus side, I have added about $11,000 in gains in the past week with this increased trading.  On the downside, it is all short term gain.   I am very near the cliff on ACA now so either need to stop trading or really blow past it.   The next few trades would be taxed near 100%.  I should have gone with a super cheap bronze plan...

An example of my trading is I bought 400 shares of SPY on Friday for $260 and sold it Monday for $264, then rebought it near end of day for $261 and just sold it now for $265.30.   Over $3,000 in gain, but all taxed as short term, unearned income, even though I had to work to click the mouse button and stuff.  Seems like it should be earned income.