If so, then shouldn’t we all refrain from using the margin account? I think it’s been said that margin account means you don’t have to wait 2 days for settlement. But during this time you are trading with borrowed money, yes? In any case, I’m not using the margin account.
I’ll twist the question. What if I invest only up to 1.00 leverage, but then cash out on margin. Am I a proffesional trader, or did I just take a loan?
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Variation of the question: what if you buy some 3x leveraged s and p 500 etf ? Does that make you a professional trader?
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We are getting creative, I like it 
@Bojack: Tax authority (TA) will neither realize nor care that you technically are trading on borrowed money until settlement. In general, as long as you have the money elsewhere (different account, cash, about to be settled) you are much less at risk to being classified as professional trader. I’d say: No risk.
@glina: Certainly you would be at a significant risk. This also goes the other way: Borrowed money can also be a personal loan or even a mortgage in specific cases. In the later however, it would have to be really obvious, e.g. increasing your mortgage and shortly thereafter buy shares for a similar amount. TA will judge on the overall situation, so as long you can explain your actions reasonably, your good. In your case, if you are taking out cash on margin to buy a car you have seen this very moment, when two months later your bonus clears with roughly the same amount you are probably fine. If you pay your rent and food with that cash on margin, you’ll have an issue.
@IdleThought: I’d say very small risk in general, also because TA will not even notice. Then again, if you invest a majority in leveraged products, TA might become suspicious and it would have to be discussed if those products are part of a usual investor’s asset universe or not. It’s again about pushing it too far.
In summary, trading on credit is the most major indication for being a professional trader. However, the law requires the TA to rule on a case-by-case basis, so you’ll always have the possibility to explain your actions. One exemption with less exposure is even listed: Borrowing money at a rate lower than your taxable returns, e.g. borrowing at 2% to buy a stock with 3% dividend.
One thing to keep in mind: This is the German definition of a professional trader as ruled by the federal court and listed in ESTV Kreisschreiben 36:
Danach erzielt die steuerpflichtige Person steuerbares Einkommen aus selbständiger Erwerbstätigkeit, wenn sie An- und Verkäufe von Vermögensgegenständen in einer Art tätigt, die über die schlichte Verwaltung von Privatvermögen hinausgeht. Erforderlich hierzu ist, dass sie eine Tätigkeit entfaltet, die in ihrer Gesamtheit auf Erwerb gerichtet ist, bzw. dass sie solche Geschäfte systematisch mit der Absicht der Gewinnerzielung betreibt
A professional trader is someone who buys and sells securities beyond a simple private wealth management, and exhibits a systematic activity that in its entirety is targeting to generate profits.
By this alone, nearly every reader on this forum that is not a buy-and-hold strategy enthusiast probably meets that criteria. We are therefore closing the loop and are back on square one: The tax authority only cares about the big fishes, so just keep your heads down!
To end the wall of text with a community challenge: Who finds the ruling of someone declared a professional trader with the smallest possible amount in profits?
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I dabbled with options last year and ended up getting assigned twice in December so I was 40k in the red. I’ve covered that gap now but I still had to mention it in my tax declaration. As far as I know, I’m not considered a professional trader by the tax authorities.
In my opinion, those concerns are overblown. Put yourself in the tax office employee’s shoes: They see a guy like us earning 100k a year, paying maybe 15k in regular taxes. That guy bought 30k of index funds and sold maybe 1k to rebalance or whatever. Are they really going to go after that guy for 15% of that 1000 chf? That’s not worth the trouble…
Now if they see a guy not working and getting 20k in dividends (taxable) and 40k in securities sold (in theory not taxable), you can be sure that they will qualify him as a professional trader, if they can, because there’s a lot that they’re losing by not doing it…
So as long as you’re accumulating, I wouldn’t worry too much about getting qualified as a professional trader. I wouldn’t worry about going on margin if you’re aware of the risks. As long as you’re not selling much, they don’t have an incentive to go after you…
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I used to work with a guy who was working and didn’t make huge money on investing, but he still was classified as professional trader because doing algorithmic trading on options. Maybe it depends on canton’s TA policy or maybe just on case. I’m not sure what was the rationale of this decision. The TA certainly wasn’t collecting lots of money from his capital gains.
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I mean… sure, algorithmic trading on options is as professional as it gets
No, wait, that’s actually not true: algorithmic trading on futures commodity options is as professional as it gets. But your friend is pretty close…
And you’re right, it does for sure depend on the canton’s policy and there are overzealous employees everywhere.
My point is that even if they classify you as a professional trader, you only have to pay taxes and AHV on the amount that you sold. And that shouldn’t be much in the accumulation phase.
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If you borrow at 1.5% at IB, you can be sure that the dividend you recieve will be higher than the interests if it is a distributive asset. If you meet that criteria, just make sure to meet the 4 other criterias and they won’t be able to classify you as a professional trader.
Hi Mustachians,
assume one owns an ETF or a stock that also has an active option market. Here assume I own say 100 SPY stocks, this ETF has monthly/weekly options:
Yahooist Teil der Yahoo Markenfamilie
If I sell one out-of-money call contract a month out hoping that SPY won’t reach the strike price and I just collect the premium, will the tax authorities consider this premium as income? Will I be considered a trader from a tax status?
-zmo
It does not imply anything per se. The only published set of criterias there is determines when you are definitely not a professional trader. But yeah, with your behaviour you are definitely risking getting it.
You can write to your tax office, describe what you want to do and ask for a binding tax ruling - this is the only way to know for certainty.
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Hello,
What if you open 2 different brokers accounts:
- one for long term buy & hold investing
- one for day/short term trading fun money
Any chance they would tax us only on that second account and not on the main one?
No. Professional trader is per person, not per account
Ok, thanks for your answer. It would have been too easy!
Can someone please explain a little bit rule number 2?
I am struggling to understand it:
If at the beginning of the year I have a investment portfolio of 1000, then I buy some shares for 5000 and later (after 6 months) I sell them for 6000 finishing the year with the same amount in my portfolio (1000). Wouldn’t my transaction volume (11k) be five times the total value of my securities at the start of the tax year?
Wouldn’t it be difficult to comply with this rule during a market sell-off when people are trying to cut their exposure by reducing the amount of their investment portfolio?
Technically yes.
Technically yes.
Practically, it’s meaningless.
Also, it’s not a rule but rather a possible criterion.
french version says " du montant des titres et des avoirs". I understand “avoirs” as including money.
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Is this the reason why I didn’t find any post with people being scared by this criterion? I think it is quite constraining, especially in the FI community where with a high save rate it is possible to transact more than 5 times the value of the portfolio at the beginning of the tax year.
Should I be worried if that is the case?
Ok I think this might be it, I check the Italian version and it says “il valore dei titoli e degli averi sui conti”.
Including also all the bank accounts makes more sense.
Same thing in the German version (“Wertschriften- und Guthabenebstand”). This is omitted in Thaek’s post above. So wouldn’t violate the federal tax administration’s guidance’s criterion.
It is important to note - just as Thaek above say - that the criteria are meant to definitely rule out professional trading activity. In no way do they mean that a “violation” will automatically lead you to being classified as a professional trader.
The possible classification intends to capture trading activity deliberately intending to achieve short-term capital gains. It is not meant to “punish” personal investors for one-off (or even regular) portfolio reallocation.
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Do we have a definite answer on the leveraged ETF question?
I want to implement a strategy that includes holding a daily 3x bull etf with 10% of my assets.