4 Ways to Know If You’re an “Individual Investor”

Income and Investments couple meeting with financial advisor

Years ago, when I first started investing, I was worried about what it meant for my taxes. I just started a new job, set up my retirement plan, and my head was spinning from so many forms that I waited to invest in anything. This was nearly twenty years ago so investing was as easy as opening up a roboadvisor account or signing up for a savings app.

Once things settled down, I opened up a brokerage account and dipped my toes into investing through index funds. I still remember that first year when a couple new 1099’s appeared and I was surprised I’d become an “investor.”

Fortunately, with tax preparation software, doing your taxes as an investor isn’t too challenging. Here are ways you will know if you’re considered an individual investor:

If You Bought or Sold a Security

This is the simplest way to know if you’re considered an individual investor – did you buy or sell a security this year? This could be anywhere from a share of stock to bonds, mutual funds, index funds, and even cryptocurrency.

Simply buying a stock isn’t enough to change how you prepare your taxes. If the company doesn’t pay a dividend and you don’t sell it during the tax year, it won’t have an impact. But if it pays a dividend, you’ll have to report it as income. If you sell the stock for a gain or a loss, you’ll have to report the transaction on your taxes.

If you invested in mutual funds or index funds, you’ll likely get 1099-DIV and 1099-B covering any activity they generated.

If you invested through a retirement plan, such as a 401(k) or a Roth IRA, it’ll have little impact on your tax preparation. They only come into play whenever you start taking distributions in retirement.

If You “Saved” With an App

It’s a little obvious that you’re an investor when you buy stock, but a lot of new savings apps help you save more and, in the process, turn you into an investor without you even realizing it.

For example, Acorns is an app that helps you save money by rounding up your purchases. When you make a purchase with your Acorns debit card, they automatically round up your transaction to the next dollar and invest the difference on your behalf. If you spend $8.50 on your lunch, they round it up to $9 and invest the extra fifty cents in a portfolio of exchange-traded funds.

It may not feel like it but when you save with an app that invests the money on your behalf, even if it’s in sub-$1 increments – you’re an investor.

What Kind of Investor Are You?

Are you a casual investor? A day trader? Does it matter?

It matters when it comes to taxes. A day trader is defined by the FINRA and NYSE, though they call them “pattern day traders,” as someone who trades four or more times during a five-day period and the number of day trades is more than 6% of their total trading activity during that period. That person can also be considered a day trader if their broker classifies them as a day trader, which comes with different capital and margin requirements.

Whether you’re a casual investor or a day trader with a transaction sheet as long as a CVS receipt, tax time can be a challenge because of all the paperwork. If you keep diligent records, made much easier with electronic transaction logs, tax time should be a breeze.

What Kinds of Transactions Do You Have?

The last way to know if you’re an individual investor is to think back to the types of transactions you completed during the year.

If you sold shares of stock, it’ll generate a gain or loss that is reported through tax forms. You probably expected this.

Did you buy or sell any cryptocurrencies? Did you jump on the rapid rise of Bitcoin or other cryptocurrencies like Ethereum? Cryptocurrencies should be treated just like the purchase and sale of any other security. You report gains and losses through Form 8949 and Schedule D. Form 8949 reports the transaction and Schedule D covers the gains and losses.

By answering a few simple questions, you’ll know whether or not you’re an individual investor, but don’t worry about knowing tax rules related to investing. TurboTax unveiled a redesign of TurboTax Premier that tackles the biggest pain points for the 21 million taxpayers with investments in the U.S., including personalized guidance, covering nearly every investment tax situation, including stocks, bonds, ESPPs, robo-investing, cryptocurrency, rental properties and more as well as data import to eliminate work.

If you want additional assurance, you can connect live via one-way video to a TurboTax Live Premier CPA or Enrolled Agent with an average of 15 years experience to get your tax questions answered. TurboTax Live Premier CPAs and Enrolled Agents are available in English and Spanish year round and can also review, sign, and file your tax return.

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