A few further points:
"Investing" is considered to be an activity engaged in for profit. Therefore, even if you were to walk into an audit and scream, "Investing is my hobby", the IRS simply can't disallow the $3000 ($1500 if married filling separately) capital loss deduction you might have claimed on Schedule D. You get that regardless per I.R.C. §1211(b). Also, you may still deduct investment expenses (provided they are "ordinary and necessary") on Schedule A to the extent those expenses exceed 2% of your adjusted gross income. They can't take that away either. In short, the IRS has no authority to reclassify investment activity as a hobby. Conversely, they most certainly can invoke the hobby loss rules with respect to any activity that is claimed by the taxpayer to rise to the level of a "trade or business"; when you claim trader status you're doing precisely that.
Your return probably won't be given more than a second glance if you're showing trading profits of $300k, deducting $20k worth of expenses, and have no other source of income. On the other hand, you're not exactly going to be flying under the radar when you're losing money (in the aggregate) in the activity of trading, claiming expenses on Schedule C, and, thus, using that aggregate loss to offset other, unrelated, income. It all boils down to the fact that using net losses from one activity (e.g. trading) to offset net income from another, unrelated, activity (e.g. salary from your "real" job) is generally frowned upon.
Bottom line is if you're working a full-time job unrelated to trading, claiming trader status, trading losses and Schedule C deductions, you'll simply have to keep looking over your shoulder. The IRS does not like to see returns such as:
Salary and wages: $50,000 ----> construction engineer
Sch. C: ($15,000) ---> securities trader (expenses)
Sch. D: ($ 3,000) ---> net capital loss
"Investing" is considered to be an activity engaged in for profit. Therefore, even if you were to walk into an audit and scream, "Investing is my hobby", the IRS simply can't disallow the $3000 ($1500 if married filling separately) capital loss deduction you might have claimed on Schedule D. You get that regardless per I.R.C. §1211(b). Also, you may still deduct investment expenses (provided they are "ordinary and necessary") on Schedule A to the extent those expenses exceed 2% of your adjusted gross income. They can't take that away either. In short, the IRS has no authority to reclassify investment activity as a hobby. Conversely, they most certainly can invoke the hobby loss rules with respect to any activity that is claimed by the taxpayer to rise to the level of a "trade or business"; when you claim trader status you're doing precisely that.
Your return probably won't be given more than a second glance if you're showing trading profits of $300k, deducting $20k worth of expenses, and have no other source of income. On the other hand, you're not exactly going to be flying under the radar when you're losing money (in the aggregate) in the activity of trading, claiming expenses on Schedule C, and, thus, using that aggregate loss to offset other, unrelated, income. It all boils down to the fact that using net losses from one activity (e.g. trading) to offset net income from another, unrelated, activity (e.g. salary from your "real" job) is generally frowned upon.
Bottom line is if you're working a full-time job unrelated to trading, claiming trader status, trading losses and Schedule C deductions, you'll simply have to keep looking over your shoulder. The IRS does not like to see returns such as:
Salary and wages: $50,000 ----> construction engineer
Sch. C: ($15,000) ---> securities trader (expenses)
Sch. D: ($ 3,000) ---> net capital loss