Badges of Trade Flashcards
What is SOFIRM useful for?
If transactions should be treated as income under tax adjusted trading profit rules or treated as capital gains
What is subject matter?
Whether a person is trading or not can be decided by looking at transaction’s subject matter
What is length of ownership?
Where items purchased are sold soon afterwards, likely to be treated as a trade.
But if inherited, unlikely a trade
What is frequency of transactions?
Transactions which are capital are interpreted as trading transactions where frequency indicates a trade
What is improvement?
Transactions likely to be treated as trade where work is done to make an item more marketable
What is reason for sale?
Being forced to make a sale to raise cash may not be trading
What is profit motive?
Presence of strong indication that a person is trading
