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I was asked this question today by one of my known people if full time traders are counted as self-employed or business persons or professional?

I got really confused because as much as I know, a full-time retail trader working and earning alone shouldn't be a business person as a business person is the one who hires people so IMO it should be self-employed but that person told me that he has to select the occupation type in a form and there is no field as 'Self-employed' and the 2 options that make sense are 'Business' and 'Professional'.

Can anybody help?

  • I'm sure you can be full-time retail trader and businessman if you have incorporated. – RonJohn Sep 9 '19 at 17:13
  • @RonJohn That's where the main problem comes. He's not incorporated. He is just trading in his name, something that was started while he was doing a job and then he left that job and became a full-time trader. – CCCC Sep 9 '19 at 17:17
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    This is going to depend on the definition used by the person or organization asking the question, and that is who your friend should ask. – Karen Sep 9 '19 at 17:19
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    @Karen this is right. Are you a businessman if you earn your living as an independent handyman? The handyman and the retail trader for whom being a handyman and retail trading are their sole income are certainly self-employed. Make up some business cards and start going to meetings of your local small business association. Viola, you're a businessman! – RonJohn Sep 9 '19 at 17:25
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    Counted by whom and for what purpose? If this is a legal/tax question, please edit your question and include a country tag. – Chris W. Rea Sep 9 '19 at 19:29
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A person who meets the IRS definition of a full time trader can apply for Trader Tax Status and receive many business tax breaks like deduction from gross income of business expenses, employee benefit deductions for retirement plans, health-insurance premiums, MTM tax treatment (no wash sale limitation), etc. Hence, such a full time trader would be considered a business in the eyes of the IRS.

Some guy watching the market all day, making some trades here and there is a retired (or unemployed) guy :->)

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The default tax status is self-employed

There are other tax statuses possible and they have their own nuances and are sometimes one directional, meaning you can't unapply for that tax status. Therefore this is one reason why people make a new company specifically for trading and consider having that company take the special tax status permanently.

I have multiple trading companies for different strategies, ONE of which has a special tax status so I can mark to market some assets - taking deductible losses without selling them - and other reasons.

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A professional is like a medical doctor, lawyer, accountant, or engineer. A professional has a professional designation administered by a government. A professional is legally responsible to the public. However, many Ph.d's are only administered by an academic institution but are certainly professional.

The SEC considers anyone who buys and sells securities as a business to be a Dealer which requires registration. Even the IRS trader-status seems to meet this definition. I can help them with the Dealer definition by saying that the definition of a Dealer should be someone who regularly buys securities at the bid and regularly sells securities at the ask.

https://www.sec.gov/reportspubs/investor-publications/divisionsmarketregbdguidehtm.html

Now the IRS trader-status requires that the trader continuously make trades. But someone could be an investing company, without registering as an Investment Company, by not being an issuer of their own securities. But this type of investing company could meet the definition of a Dealer ! An investing company that has a particular industry focus and that does not claim to be in the business of investing might get by without registering as a Dealer since the company is like a holding company. Or a hedge fund, as for any purpose, has 100 or fewer accredited investors and is not required to fully register as an Investment Company. I suppose that the hedge fund registers as an Investment Adviser.

A corporation that is an issuer can avoid being an inadvertent Investment Company by having investments that are 60% cash or Treasury securities. A corporation like that must have a core purpose other than investing and must not claim to be an investing company.

I capitalized Dealer, Investment Company, and Investment Adviser but those are not professional designations. I gave a link to Broker/Dealer but links to Investment Company and links to Investment Adviser can also be found.

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