What Is an Individual Investor? (Definition & Meaning)

Investing has become a popular tool used by many today to grow their personal cash reserves by turning that stash of money into something profitable. Once banks used to offer higher rates of returns, but individuals have learned over the years that investing in other options offers greater returns on their money. This has allowed individuals to put their money into investments such as stocks, mutual funds, real estate investments, and exchange-traded funds(ETFs), just to name a few. 

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

While it may be obvious that you’re an investor when you buy stock, 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?

There are a few types of investors. Some people invest on the side and do not focus on the day to day events. Other times, people constantly monitor their investments, and essentially it becomes their job, such as day traders. How you invest affects how you report the transactions on your taxes each year.

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 and invest your tax refund once a year 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 when you start investing, 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.

Did you buy or sell any crypto? Crypto 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.  

TurboTax also offers a Cryptocurrency Info Center to help guide you if you have any crypto transactions during the year, as well as the TurboTax Investor Center to help you keep track of your investments and seamlessly import any taxable transactions directly into your tax return when tax time rolls around each year.

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.

No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed.