Filing tax return as Trader Status and Mark to Market Election

Discussion in 'Taxes and Accounting' started by Bolimomo, Apr 6, 2009.

  1. Should you report your tax return as a "trader"? That's what I and probably many other traders would like to know.

    I found the following web page that I think has very good information on filing your return as trader status:

    11 pages. Go through them. Very informative I think. It also has references to the IRS's publications on trader taxation.

    Do you qualify to be considered a "trader" in the eyes of IRS?

    As a trader, you would have the benefit of deducting many more expenses than if you are an investor, and not subject to the 2% floor in Schedule A. And they said (seems rather strange but it is the way you do it):

    - File Schedule C to claim all the business expenses. But leave the income as 0. This will show your business has a loss, which will offset your ordinary income, and since you have no income from your Schedule C, you don't need to pay self-employment tax. Only if you elect not to have the "Mark to Market" election. If you elect "Mark to Market", your trading gain will be treated as ordinary income.

    - File all your trading gains in Schedule D as capital gain.
  2. you cant make that decision now for 2008 taxes. you had to declare trader status a year ahead.
  3. Where and how do you declare trader status?
  4. Surdo


    You must file IRS form 3115 "Application for Change in Accounting Method" prior to April 15th, 2009 in order to file your 2009 return as MTM next year.
  5. I don't think that is what we are talking about here. Form 3115 is for application for change in accounting method.

    The web page that I referenced specifically said if you file as a trader but NOT electing for "Mark To Market", you report the expenses in Schedule C and the trading gain in Schedule D.

    I don't want to elect for "Mark To Market". I don't hold stocks overnight (I am a day trader), let alone over the tax year. Everything for me is already mark to market.

    I am just not clear if there is a special form that needs to be filled out to be in a trader status.

    Could it be that what you and vhehn are talking about is the "Mark To Market" election.
  6. Surdo


    Trader status requires filing for MTM status!

    You need to hire a CPA or do some reading.
  7. gkishot


    Why is it a requirement? One is type of business, another one is type of accounting.
  8. From what I have read and my conversations with my trader accounting firm: filing with trader status and electing for "Mark To Market" are two different things.

    Here is one of such pages you can read on the Internet:

    And I quote them:

    Whether or not you are a trader needs to be manifested by your trading activities. You can't just file a form and claim that you are a "trader", and only transact 3 times a year with a substantially long holding period for example.
  9. I did 650 TRADES LAST YEAR, about 6 million dollars worth of trades and made profit. use it as my majority income and 2 days a week.

    I wonder if this would still qualify me? I believe most day trader "Status" people probably do 40-50 tradews a week?
  10. I am not sure if anybody can advice (without consequences) you whether you have trader status. Take a look at this page and decide for yourself:

    Basically there are 2 tests. And I quote:

    #10     Apr 7, 2009