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Investor
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buys and sells various stocks, just like a trader
might. The difference is, an investor is looking for capital
appreciation in the value of his investments, or for income from dividends
on such investments. He buys and holds his investments for longer
periods of time. |
Some
forms you might be looking for U.S.
Government forms, are PDF files and require Adobe
Acrobat Reader for viewing |
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Investor reports the trading activities from his investments on Schedule D
of his 1040. Based on the length of hold on his position, the
resulting capital gains are then taxed at either long term or short term
capital gains rates. An investor may deduct capital losses against
his capital gains, and may even report a net capital loss but this net
capital loss is limited to $3,000 per year. He may carry forward
additional capital losses indefinitely, but cannot carry them
back.
Capital gains and losses are governed by the IRS
Publication 550.
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Investor is also subject to the wash sale rules.
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IRS
on wash sales |
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Investor is permitted certain expenses related to conducting his
trading/investing. These are reported on Schedule A of
1040. Couple of things to keep in mind - the expense for investor's
margin interest cannot exceed his investment income (excess can be carried
forward), and Schedule A by definition has a threshhold of 2% of the investor's
adjusted gross income. This means, that only amount in excess of this 2%
is actually deductible. Investor generally does not qualify for the Home office deduction. See
some case law examples of investor vs trader determinations. |
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