If a student and trading on a portfolio of 50 stocks, would the activity incur an audit?

by Nicholas J. Crocetti, CPA | Jul 29, 2019

I am currently a graduate student earning a stipend. I am interested in trading a portfolio of 50 stocks, and plan to rebalance them quarterly. This would result in at least several hundred stock transactions each year. Given that I am reporting myself as a student, would the volume of stock transactions be considered high enough to trigger an audit?  

The question raises a common concern among taxpayers. The number of transactions should not have an impact on potential audit activity. What is more important is the accuracy of the reporting of the transactions, including the proper gross revenue from the sales, the proper presentation of tax basis, and the proper classification as to short-term and long-term activity. Also, you should be cognizant of the “wash sale” rules.  

I would suggest that you consult a CPA to discuss the benefits of electing to being classified as a “day trader” if the trading activity rises to a high level.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Nicholas J. Crocetti, CPA, is a retired director of tax advisory solutions with CBIZ MHM LLC in Plymouth Meeting, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
Financial FAQs

Search the most frequently asked finance and accounting questions and read the responses from PICPA members. Always consult a CPA before taking action.