In 2000, I traded for just 1 month (December), mostly swing trades. I had several family members and friends that were investing with me. When it came time to figure taxes, I decided to file the easiest way I could...my profit wasn't large enough that penalties for filing incorrectly would have killed me, and I just didn't want to try and figure out how to do everything the 'right' way. What I did was to take the amount I profited, subtract from that the portion due to friends/family + expenses, and pay tax on that income. I did this on a schedule C. I also included a list of all my 'investors' along with their SSN's, and the $-value they made. I also paid social security on my personal profit amount. I did not include a ScheduleD, I figured if I got audited that would be the time to submit it. This year I'll have 12months worth of trading, but other than the substantial increase in activity, everything has remained the same. My question is whether or not I can file in the same 'common sense' manner as I did last year. I was initially told by a friend that this way was not correct, and if I were to get audited I could expect a hassle of biblical proportions. Since then, nearly everyone I ask says that there shouldn't be any problems with it. So...is the increase in activity likely to get me flagged for an audit? And if I do get audited, will this "well, i may not have filled in the right forms, but I paid tax on every dime I earned and I wasn't trying to cheat anyone" explanation hold water, or will I just be screwed? Any comments are welcome, thanks.