Had an argument with a friend and so I am turning to ET hivemind for opinion. We know that if we want to treat trading income as earned income, we have to file for Trader Status. The question is, if we do not elect it, and trading was my sole source of income (it isn't, but lets assume it is for arguments sake), can the IRS force me to treat it as regular earned income?
IRS doesn't need to "force" trader status. Earned income and short-term capital gains are taxed at the same rate.
No it cannot force. It's entirely voluntary on the side of the trader and he may or may not be granted status pending circumstances and evidence submitted.
Yes, but I trade futures only, and 60% of my profits are long-term. Only 40% is short-term - so it will make a huge difference for me.
That's not what the irs says. I read the section a few weeks ago and am hence pretty certain there are no such terms attached.
its a supreme court ruling. It's posted on Green Trader Tax. https://www.elitetrader.com/et/threads/irs-trader-status.305233/
Wrong, trader status does not permit cap gains to be treated as earned income. Trader status allows traders to deduct their trading expenses and that's all. IRS would prefer you not file as trader. It's a gift from our benevolent government bestowed upon us when everybody and their grandmother was quitting their jobs and day trading. You need earned income to fund an IRA, cap gains do not qualify. I think you are confusing trader status with forming a trading entity.