I'm trying to figure out the implications of my income situation on my eligibility for the Earned Income Tax Credit. My understanding is:
- that short-term capital gains are taxed at the same rate as "ordinary income".
- that long-term capital gains are definitely not considered earned income.
However, I don't know what the overlap between "ordinary income" and "earned income" is. I know that short-term capital gains are still different from other forms of income explicitly defined as "earned income" (e.g. wages, salary, etc.) because you report it on form 8949. However, it's not explicitly excluded from the definition of earned income found here or here, but it isn't necessarily included in the general definition either. Can short-term capital gains be considered earned income?
The specific case I'm interested in is that of a "trader" as defined by the IRS. For traders, gains are reported as short-term capital gains so don't incur self-employment taxes. However, "trading" is still considered a business under their definition and allows for e.g. business expenses to be written off. If this business is generating income but the income is short-term capital income in nature, then is it considered both short-term capital gains and earned income?