What types of taxes do personal, full time day traders pay to the govt?
Answers:
The proper classification of your investment activities is important to determine how income and expenses are to be reported. Investors trade solely for their own account and do not carry on a trade or business. Their securities sales result in capital gain or loss and their deductible expenses are itemized deductions. Dealers sell securities to customers in the ordinary course of trade or business. Their sales result in ordinary gain or loss and their deductible expenses are trade or business expenses. Traders buy and sell securities frequently but have no customers. Their purchases and sales result in capital gain and loss, and their deductible expenses are trade or business expenses.
The net result is that in all cases you pay income tax. Social security tax (or self employment tax) would not be paid unless it was a business.
Personal, full time day traders will pay capital gains taxes on their income. That means 10-15% on Long-term gains (if the stock is held for longer than 1 year) and up to 35% on Short-term Gains (if the stock is held for less than 1 year). You will report this income on Schedule D but you will report your expenses on Schedule C.
You would not owe Self Employment tax.
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