I did a search on this and didn't find much. I believe you have to claim it in the first couple months of the new year by sending a in a form to the IRS. My question is what are the benefits if any of claiming traders status and is it worthwhile to do so? Have any of you claimed traders status? TIA triple
Perhaps you are thinking of the mark-to-market election. You don't have to file anything ahead of time to file as a trader on your 1040. Get a Ted Tesser book.
It really depends on your situation. What do you trade(futures/cash)? are you consistently profitable? Is trading your sole source of income?
Is there any self employment tax (social security and medicare) if you claim trader status or is it just a mark to market at year end and deductibility of all trading expenses that is at stake?
Trader status and mark to market are two different things. Trader status essentially means you have a trading business. It does not exclude other businesses or employment. You report trading p/l on schedule D, expenses and depreciation on C. The IRS has a great deal of latitude in defining trader status. There are virtually no (if any) specific measures. No self employment tax is paid, but you are still limited to a $3,000 annual loss against other income. Mark to market gets you around that. In my opinion (based on a lot of research and setting up various scenarios) MtoM saves a bit of bookwork if you do a ton of trades. That's about it. You also are stuck with it once you make the election. (Yes, I know, it can be rescinded, but not without direct dealing with the IRS which I prefer to avoid).
The biggest advantage of MTM for me is that I don't need to worry about wash sales. You can have two types of accounts. One can be your trading account which is subject to MTM (if you elected MTM). The other can be an investing account which is not subject to MTM. As long as you separate your trading vs. investing activity into these two accounts (and you keep records indicating whether the account is a trading or investment account), you can still get long-term capital gains tax treatment for your investments. Also, you can specify MTM for securities trading but you don't have to specify MTM for futures trading (doing so would eliminate the 60/40 tax benefit of futures trading).
Are you absolutely sure about this. I realize you can keep a second investment account. Are you suggesting you can designate the futures account as your investment account and your stock account as your trading account? very curious, Cheeks
Let me rephrase my question. If you did elect MTM on your stock account and investment on your futures, do you think you could defend it during an audit? My concern is that they would see two actively traded accounts and the red flag would go up.
as my acct never did the MTM treatment for me but I do go flat at the end of the yr ... and trade actively and my acct did deduct for me more than 3 K in losses one yr because of my trader status with IRS what really gets me upset is hearing that some people actively trade in their IRA acct and hope to never pay taxes !?