Simply put, the IRS views day traders as a small business, while those that buy or sell stock less frequently are simply stuck with Schedule D stock reporting. The difference may sound minute, but it matters from a tax point of view.

Day traders and investors are both stuck with paying taxes on their gains and dividends. Given the nature of the game, however, day traders rarely have dividend income because they do not hold on to the stock long enough. The real advantage for day traders, however, comes in the additional expense department.

Since day traders are viewed as small businesses by the IRS, they can deduct whatever any small business can. This includes expenses such as those related to home offices, internet access, stock research costs, utilities and so on. An investor cannot deduct these expenses in relation to their investment activity. In simple terms, the day trader gets to claim expenses on Schedule C, while the investor does not.

So, does this mean you should try to claim yourself as a day trader if you trade stocks more than a few times a month? Well, you have to be careful. The rule is unusually vague, even for the tax code. It states that you must trade sufficiently frequently and substantially to be considered a day trader. A better rule used by most accountants is to only claim day trader status if the activity is your only job.

Article Source: http://www.ArticleJoe.com

Richard A. Chapo is with BusinessTax Recovery - providing information on taxes.

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