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whats the difference between day trading and flipping and their tax implications?
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flipping usually refers to real-estate transaction: you buy a property, improve/renovate/rehabilitate it and resell it quickly. the distinction between flipper and investor is similar to the distinction between trader and investor, even though the tax code doesn't explicitly refer to house flipping. gains on house flipping can be considered as active business gain or passive activity income, which are treated differently: passive income goes on schedule e and schedule d, active income goes on schedule c. the distinction between passive and active is based on the characteristics of the activity (hours you spent on it, among other things). trading income can similarly be considered as either passive (schedule d/e treatment) or active (schedule c treatment). here's what the irs has to say about traders: special rules apply if you are a trader in securities, in the business   of buying and selling securities for your own account. this is   considered a business, even though you do not maintain an inventory   and do not have customers. to be engaged in business as a trader in   securities, you must meet all of the following conditions: the following facts and circumstances should be considered in   determining if your activity is a securities trading business: if the nature of your trading activities does not qualify as a   business, you are considered an investor... investor, in this context, means passive income treatment (schedule d/e). however, even if your income is considered active (schedule c), stock sale proceeds are not subject to the self-employment tax. as you can see, there's no specific definition, but the facts and circumstances matter. you may be considered a trader by the irs, or you may not. you may want to be considered a trader (for example to be able to make a mark-to-market election), or you may not. you should talk to a professional tax adviser (ea/cpa licensed in your state) for more details and suggestions.
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