Do you remember the movie, "It's a Wonderful Life?" In one scene, an angel shows George Bailey (played by Jimmy Stewart) how his life will end if he doesn't change his ways. If an angel gave me a preview of my life last summer, I wouldn't have been as humble as George. Nothing could have convinced me I was about to make the wrong investment decisions.

A 9-to-5 job might have saved me. I wouldn't have had the time to day trade. Since I'm a freelance entrepreneur, I have the freedom to adjust my hours. I gave my days to investing and switched my work to evenings.

I bought books on day trading and read them cover to cover. I learned a day trader doesn't hold stocks overnight. Did I do that? No. Sometimes I held stocks for weeks. Day traders are also expected to practice patience. Uh-oh. I have a limited capacity for that virtue. Day traders are advised to have the television tuned to CNBC all day, utilize several computer programs to read minute-to-minute charts, and maintain a fast connection to the Internet. I had all of these tools, but none of them helped me make the right decisions. The "right" decision, in my humble opinion, would be the one that would make money.

According to the IRS, you are a trader in securities if you are "engaged in the business of buying and selling securities for your own account." In other words, you must seek to make a profit from daily market movements in the prices of securities, your activity must be substantial, and you must carry on this activity with continuity and regularity (or until you run out of money).

If you are a trader, you have special obligations to the IRS. This includes all the formalities of owning a business, including filing Schedules C, D and SE. Don't know which ones these are? If you're day trading, you'll get a total education in their powers.

This is a real job. I treated it like a walk in the park.

My personal life suffered. I had to juggle my clients and my responsibilities. Although Cora was interested in our investments, she wasn't very happy with me "playing" the market. This wasn't a game for her.

The goal is to make money, right? If you meet this goal, the profit is counted toward income and tax brackets. If you're in the 15% tax bracket, you might make just enough to push you into the next tax bracket.

This is similar to working to pay for daycare. You might be familiar with that scenario - you go to work and you place your child in daycare. When you get your paycheck, you realize you've made just enough after taxes to pay for the care of your child. Period.

It's the same with profiting from day trading. You may realize at the end of the year that you made just enough to pay your taxes. Worse - you may owe more than you have in your budget to pay. After all that work and tension, I consider this a sad state of affairs. To understand this problem a bit more, you might want to read some articles at the BuyandHold Tax Center. Carlson's "Taxes 101" is a good place to start.

If you want to drive the point home on taxes for short-term investments, take another trip to the calculator, "Should I sell before or after one year?" To make a long story short on this tool, realized gains on taxable investments held for at least one year are taxed at a lower rate than short-term realized gains, which are taxed at the same rate as ordinary income.

Daily expenses include money paid to the stock brokerage for each trade and fees for money wires between the bank and the brokerage firm, among other small items. Unless you keep very accurate records, you may miss a few of these "items."

You might have all your ducks in a row, but if they're lined up inside a paper bag, that doesn't count. This is especially true with day trading. What a mess! Schedule D is the form to fill out for short- and long-term capital gains and losses. I'm never going to see the letter "D" again in my life without remembering my day trading experiences.

You might feel the need for a tax accountant. There's no shame in this need, Superwoman. But if your accounts are in shambles, you're actually paying the accountant to go through your mess. I have to ask myself this question: If I can't afford a maid, then why am I paying someone else to clean up my yearly receipts? Spend some time and just a small bit of money (tax-deductible) on a program to organize for tax time. The Quicken programs are reasonable and easy to use. The few minutes a day I now spend logging my income and expenditures will save me a huge headache this time next year.*

This past year was my education on how not to invest my money in the markets. Believe me, I've paid for this education, but I don't think I can include this experience as a "Back to School" deduction on my taxes.

Basically, I learned two things about my money and time: 1) my money is best spent in long-term investments with dollar cost averaging; 2) my time is best spent with my daughter. I prefer dreams to nightmares. With wise planning and careful spending, Cora and I can party down like George Bailey when he realizes he can have this wonderful life.

Until next week.

Linda Goin

*If you do have a tax accountant, ask them which accounting program they use - you want compatibility between your record keeping practices and their programs for smooth transitions.