Proactive professional trader status as individual

Taxes
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The great thread Professional investor/trader status is mainly about how to avoid pro trader status.

I would like to propose a thread for those actively seeking to be classified as professional trader.

I would love to hear from and maybe connect with people who have this status, and maybe get a recommendation for a tax advisor who has experience with this.

I’d prefer not to discuss here the option of setting up a company for trading purposes.

  • so far I believe noone in the other thread identified as having pro status
  • @LeStache mentions having met someone from Basel trading shares and options.
  • @FIREstarter mentions having met someone from Schwyz trading options.
  • @FIREstarter linked an NZZ article saying that in Zurich, less than 100 individuals were classified in the 5 years before 2019

Many people actively seeking the status are those who want to deduct their trading losses from their income (including me).

  • Federal court decision 2C_868/2008 (mentioned in Kreisschreiben 36): In 2003, a pensioner makes 700k by trading stocks, bonds, options and forex, then dies. The Steueramt ZH classifies him as pro. The heirs contest this, and the Verwaltungsgericht ZH classifies him as non-pro. The Steueramt ZH takes this to the federal court which upholds the pro classification.
  • Federal court decision 2C_375/2015 (mentioned in the NZZ article above): The plaintiff wants to deduct ~40k of options trading losses for 2010. The Steueramt denies pro status. He takes it to the Verwaltungsgericht AG, which also denies pro status, with the argumentation “Da sozialwissenschaftliche Untersuchungen auch zeigten, dass private Anleger zu einem gewissen Aktivismus und zu einer übermässigen Umschichtung ihres Portfolios neigten, könne ein hohes Transaktionsvolumen auch als Indiz für ein unprofessionelles Anlageverhalten interpretiert werden.”. He takes this to federal court, which rules the argumentation of the Verwaltungsgericht utter bs (quite funny), but still denies pro status with the argument that “the way in which he traded options cannot have been suitable for a selbständige Erwerbstätigkeit” (not so funny).
  • Federal court decision 2C_389/2018 (mentioned by @nabalzbhf): The plaintiff is classified from 2006-2012 as pro-trader and the Steueramt allowed him to deduct his losses in those years. In 2013 he stops all trading activities. In 2014 he starts trading again, but this time the tax authorities and the courts ruled that 13 years of consecutive trading losses do not qualify as “Selbständigkeit” anymore, but as “Liebhaberei/Hobby”.

Based on these decisions it seems to me that tax authorities and courts tend to rule trading losses as non-professional (and deny deductions), but on the other hand rule profits as professional (and tax it). Not what I would call fair or “Rechtssicherheit”.

The rulings also state clearly that from the 5 criteria of Kreisschreiben 36, only the trading volume and foreign financing matter nowadays (but not the systematic approach or level of special knowledge).

In 2024 I lost ~10k daytrading stocks, plus ~5k of associated costs.

On January 1, I sent an email to the Steueramt ZG asking how to proceed to be classified as pro.

The answer (January 14):

Da Sie im Kanton Zug wohnhaft sind erhalten Sie alljährlich die Steuererklärung zugestellt. Bei allfälliger Qualifikation als gewerbsmässiger Wertschriftenhändler müssten Sie der Steuererklärung eine detaillierte Zusammenstellung beiliegen über die diesbezüglichen Einkünfte und Ausgaben. Eine separate «Anmeldung» als solche ist für Steuerzwecke nicht erforderlich. Eine allfällige Qualifikation als gewerbsmässiger Wertschriftenhändler wird im Rahmen des Veranlagungsverfahrens geprüft.

Makes sense to me. I replied by describing my trading patterns and asking if they had any guidelines for the “Aufzeichnungen”. No reply so far. A friend suggested to try calling, because via email the tax office can only say so much.

In any case I intend to deduct my losses and see what happens. I expect the status to be denied. I’m tempted to then try to appeal and gain some real-life experience with the Swiss court system. I’m not planning on spending any money on lawyers, so any help is appreciated. I might regret this, but hopefully it will be entertaining for you to watch :sweat_smile:

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Definitely interested in following your journey.

Regarding being classified as Pro:
It kind of makes sense to me that they would never classify someone as professional as long as he/she doesnt make profits (even when ticking the other boxes). A year of losses in between makes sense, but it is clearly not in their interest to classify someone as professional that loses year by year.
Now if you can get through the courts and get a clear ruling about what counts and what not, that would be great for settling the vague discussions here in the forum. :smiley:

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Occam’s Razor would suggest that those who are pros don’t need to ask if they are pros, and those who aren’t know they aren’t, and courts/tax authorities know it too.

Common sense would suggest that the tax office wants to maintain some fairness in the system and hence won’t penalize (ie tax) small time retail who dabble at trading and also won’t give them benefits (tax loss harvesting). That or I am still rosy eyed thinking Switzerland is a land of fairness and common sense, though in about 4 years here I haven’t seen something that’d suggest otherwise.

Or maybe I’m wrong, this seems like something Greece would do: “When I am right I am right and when I’m wrong I’m not”

Other than that my interest and contribution to this subject is academic and can be ignored :slight_smile:

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It’s easy to achieve that. Start a trading company and trade there. All losses will be deductible and you will not have to pay taxes at your personal tax rate, but probably a lower one.

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Maybe best would be to ask tax office directly. Perhaps there is a form where you declare that you are professional trader and you confirm that you will not ask to change the status from Pro to not if you start making profits

Just remember that you would need to be willing to be PRO for 100% of your portfolio and not just 10% of it. You cannot be 10% trader, 90% investor.

I would caution you though. You are somehow assuming you will be better off. How do you know?

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I like how courts are trying to save this person from losses by discouraging them to be trader. But the person wants to lose more money :wink:

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Maybe a bit off-topic, but what’s your end goal here? You opened a SwissQuote, IBKR, Schwab account and thinking about Alpaca, but you have only lost money until now (except for ETFs I guess).

Is it really such a big deal to write off your 10k in losses? Since you live in Zug, you aren’t paying a lot of taxes to begin with (low income/wealth taxes, Mieterabzug, etc.).

As @Abs_max points out, you will be liable for your whole portfolio, meaning that capital gains will become taxable. In addition, if your income exceeds CHF 2 300.- (including capital gains) you will be required to pay about 10% into AHV

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There is some logic, if you don’t have a GmbH and you consistently lose money, it does sound like an (expensive) hobby.

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The fact that you would want to be classified as pro, is prove that you aren’t a pro. You obviously expect minimal future earnings, if at all, for this classification to be desired now. Whether consciously or not, you admit with that request that they should deny you.

In general, you have zero chances to get pro status for a 15k CHF loss in trading year 1.

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Uh boy, I am already getting court vibes, and I can tell you it is not pleasant :sweat_smile:. I do realize that it is not at all in the interest of a Mustachian that this status be granted easily, or even how this whole endeavor could be perceived as (live-savings-) threatening. I am sorry about that.

Ideally I would like to be treated like a new company that incurs losses.

If I were to set up a trading company, noone would question the pro-status, and I could carry forward the losses of 7 years.

The problem (from the perspective of the tax office) is that with pro-status, I can immediately deduct my trading losses from my empoyee salary, whereas a company actually first needs a profitable year in order to offset the previous losses. Basically the company has to prove it is a “pro” in the sense of being capable of generating a profit.

The problem (from my perspective) is that as soon as I become profitable (enough), I will be classified as pro, but I will not be able to offset the losses from the previous years.

For me, a fair solution would be a deal with the tax office that I first have to prove to be capable of generating a profit with trading, but - if I do so within 7 years - they will allow me to retroactively deduct my losses. I will probably hear (again): “Just set up a company.”

I did, see my original post. There is no form or process to proactively change the status.

Yes, thank you for pointing it out (not meant sarcastically). I am fully aware of that, but still important to keep in mind.

Yes, thank you for pointing it out (not meant sarcastically). I am fully aware of that, but still important to keep in mind.

I’m not disagreeing :sweat_smile:. But, to quote court decision 2C_375/2015:

7.4.2. Die hier im Streit liegenden kurzfristigen Börsentransaktionen lassen sich nicht ohne Weiteres mit den in den erwähnten bisherigen Urteilen thematisierten Tätigkeiten wie etwa Landwirtschaft, Weinhandel oder Kunstmalerei vergleichen: In der blossen Abwicklungshandlung bei einem Börsengeschäft lässt sich nur schwerlich ein Hobby oder eine Liebhaberei erkennen; ohne die Absicht der Gewinnerzielung wäre diese Tätigkeit jedes Sinnes entleert. Aus diesem Grund ist mit den Vorinstanzen davon auszugehen, dass die subjektive Gewinnstrebigkeit beim Beschwerdeführer unzweifelhaft vorhanden war.

No, I will live.

Ouch :sweat_smile:. You are both right, I am a beginner and amateur in the sense that I cannot generate a profit with daytrading. I’m trying to improve… On the other hand, pleading to be a hobbyist never stopped a tax office from classifying one as pro :man_shrugging:

Thank you all for your inputs!

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I disagree, see my previous post.

I wouldn’t take the bet, but I think the chances are non-zero.

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I think this might be the misunderstanding, esp. if you also have a salaried activity it’s not like they will run after you for your day trading revenue, as soon as it’s profitable for you.

The people I know who day trading/dabble in derivatives on the side are not classified pro (and they shared their trades with the tax authorities). (And I never asked for details but I do think it was profitable at least at some point)

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Wait, I thought you are a gambler day trader!? I’d take the bet that no one ever, in the history of current Swiss tax law, has been classified as professional trader with trading losses in their first year (whether they wanted it or not).

And I’ll even give you a way to beat me in that bet: Earn 250k through day trading in 2025 prior to your discussion with the tax authority regarding your 2024 taxes. They will happily let you deduct your 15k losses of 2024 to get the status established if you prove that you are profitable. Edit: Actually, would probably be even easier to achieve with less profit. Just drag all final tax assessments through all instances for a few years, until you are making a steady profit, and win the case for 2024 on that basis.

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I also don’t think they would. But the core argument in the linked decisions was always: “continuous losses = does not qualify as self employment, but hobby”. If I were to have just one profitable year (no matter how profitable), I would imagine it much harder for them to reject the classification. At least a new argument would be needed.

Again, I wouldn’t take the bet, you’d most likely win. Most people in the history of Swiss tax law probably tried to get the status only after they already incurred several years of losses. I might have marginally better chances being still in the 1st year.

Yes, that could maybe work. But I wouldn’t have the stomach for that. If I loose this appeal I will either look seriously into the company option or indeed write if off as an expensive hobby.

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Wouldn’t you incur more taxes when you take the money out of the company somehow? (salary, dividends, or something else)?

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I think there is a need to go back to the intent of the law to understand the decisions. The often repeated decision points are simply objective measures that can help in edge cases, but they are not the main point.

What does the law wants to do, at a very high level? Not tax advantage people for whom their main source of income to live is through trading and not a regular job. People for whom trading replaces their job.
This means your trading needs to look like a regular job: you derive (relatively) steady, significant income from it, and it’s your main income.

If you consistently post losses, then how can it be your job? I wouldn’t work a job where I had to pay money every year. I pay every year to join a sports club, and whilst you could argue it’s a failed attempt at becoming a professional, it’s clearly just a hobby.
If you have another job besides trading, it’s also going to be very hard to make the point that trading is your main job and the rest is just a side gig for extra income. A consulting gig for a few hours here and there might be fine (and this is where the decision points will be useful), a 100% salaried job will not; how can trading be your main job if you already work 100% elsewhere?

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May I ask why do you want to be professional trader ? Is it because you want to make a living out of it ? Or is it because this will help you get a classification of being self employed which maybe has some other benefits ?

If it’s about making a living - then wouldn’t you make less money if you are classified as professional?

I am still confused because for most people not being classified as professional is better in terms of tax, why is it better for you other way around?

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Because he has lost money trading and now wants to write off those losses in order to pay less income tax. For us it’s the other way around, because we are profitable (no front).

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I would really really deeply evaluate, if you even have a modest chance to beat the market, for this to be worth it.

The vast vast majority will not beat the market. Really think hard about why you think, you have an edge here.

To me wanting to be classified as a pro is basically the veeeery opposite of what I want.

If you want to beat the market, using leverage and levering more traditional portfolios is probably the smarter idea.

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If one made the losses several years ago, does getting classified later still help?

Also, are there any choices in how you do your bookkeeping as a professional trader, e.g. mark to market, what year counts as the beginning of trading, etc…?

Do you have to sell the stocks to realize the losses, or can decrease in value be deducted without selling it?

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