And tax time is when frequent traders often realize that, after accounting for Uncle Sam, their profits look rather slim. Yao's trading has yet to result in a significant annual gain. Of course, losses can shield your gains dollar for dollar. But since Yao, like many traders, moves in and out of the same stocks, he risks forfeiting this break. Yao could maneuver around that rule if he claimed professional trader status, showing he focused on quick swings and made trading his primary income source.
Pros can also deduct the cost of computers and software without limit.
But Yao's not quitting his six-figure day job. Once a year, Yao piles up his statements and plugs numbers into a homemade spreadsheet. Following each trade with financial software is too burdensome, he says, and none of his three online brokers offer good trade-tracking. Yet neither paperwork nor barely there gains have turned him off. He'll keep trying his luck on tech names including Oracle, Sun Microsystems and eToys.