Recent stock market volatility makes us focus on the question of exactly who is eligible for the favorable federal income tax treatment accorded to individuals who trade stocks with sufficient intensity to be classified as securities traders in the eyes of the IRS.

Not-so-favorable federal income tax treatment applies if you trade stocks fairly actively but without enough vigor to be considered anything other than a garden-variety investor.

There’s no bright-line distinction between trader and investor status, so we must rely on court decisions to assess the issue. We will cover some illuminating decisions later in this article.

But first, let’s summarize the important federal income tax advantages of securities trader status for those who qualify. You may be among them—or not. Read on. ... Log in to view full article.