EDUCATION CENTER
GTT RESOURCES: TRADER TYPES: PATTERN DAY TRADERS

One of our GTT Trader Tax Preparation clients sent us this e-mail
"I've asked before and was told the new SEC ruling would not affect me. I was looking at your website for more information and couldn't locate any. If there is a link or article I overlooked...would you please tell me where to find it? (We added this page afterwards).

"I've learned from CyberTrader that a new account will be created that will be considered a "Day Trading Account", it has various requirements and restrictions. Explicitly, to be termed a day trader, you must make four intraday trades in a five day period. Sometimes I do, sometimes I don't...sometimes I hold overnight...sometimes I hold a month or so. So, am I a day trader or not? My concern is that the IRS will pull up the new "Day Trading Account" ruling and say...if you didn't participate in this kind of account...you are not a day trader and therefore unable to claim MTM status...which I am heavily counting on for 2001 taxes. Am I going to be able to claim MTM status in 2001?" Great question.

Here was our answer to the above e-mail question
The new NASD regulation margin requirements for "pattern day trader" are not coordinated with the IRS rules for trader tax status. The new margin rules do not set precedent for the IRS classification of who qualifies for trader tax status (i.e., rises to the level of being in the trading business). Therefore, this new rule does not affect nor change the current IRS requirements for who qualifies for trader tax status.

An example of a someone who is not a PDT but may qualify for trader tax status
An active trader has four brokerage accounts, but he is not classified as a PDT in any of the accounts. When you look at all four accounts together, the trader would be deemed a PDT and also qualify for trader tax status.

If you are a Pattern Day Trader, it helps you qualify for trader tax status
It seems obvious to us that if you are classified as a PDT, the IRS would be more willing to accept on the face of things (without examining your trading records) that you might qualify for trader tax status.

However, if you are a part-time PDT
This means if you also have another job, you should purchase our GTT Guide: Trader Tax Status and Mark-to-Market Accounting to make sure you qualify for trader tax status. See the "What's New" section of this Guide.

Note of caution
We have been contacted by many traders who have complained about the new PDT rules. These traders don't have the necessary $25,000 of capital required to open a PDT account. Prior to the new PDT rules, smaller traders could operate a trading business with $5,000 of capital. Now, smaller traders have few choices if they want to be in the trading business.

One option is to take one of the many proprietary trading "jobs" or LLC opportunities currently being advertised. See what we think of proprietary trading on our separate Proprietary Trading page.

If you have questions about PDT, e-mail info@greencompany.com

For more information about trader tax status and how it relates to PDT, we suggest you view our following guides. You can click below to purchase them, or visit our Guide page.

2004 Guide: Trader Tax Law & Benefits (includes Trader Tax Status, Mark-to-Market Accounting, Net Operating Losses, Case Law & IRS Exams, Securities vs. Commodities, Entities, Retirement & Fringe Benefit Plans, Proprietary Trading, Self Employment Taxes, Tax Planning and more) Click Info for Highlights, Table of Contents and Introduction. $39.95

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