I have a question for day trader

Discussion in 'Professional Trading' started by 20092009, Oct 4, 2009.

  1. 20092009


    I am planning to become to day trader/swing trader. Do I need to claim to be a professional trader in order to avoid the wash sell rule( http://www.fairmark.com/capgain/wash/ws101.htm )? It is possible for me to play a stock frequently?

    If you have traditional job and invest money on stock market on your spare time, then you quit your job and become a day trader, is the tax rate same for full time trader and investor with a job?

    Thank you very much!
  2. to avoid the washout rule you half to talk to your tax advisor about "electing mark to market".

    I don't know to much about it but this is what somebody told me.
  3. Surdo


    FYI: You DO NOT have to elect MTM to avoid the Wash Sale rule.
  4. niteowl8


    So how can someone avoid Wash Sale rule? Or are you talking about a step-up cost basis?
  5. piezoe


    (italics and un-bold are mine)

    You have made Herr Professor Freud very happy!

    Best way to avoid the "washout rule" is not to day trade retail. :D
  6. so what do u do then? to avoid the wash sale rule :confused:
  7. Surdo


    Trade futures!
  8. morgen


    It's hard to say how to avoid wash sale due to your investment decision.
    Two Ways to Avoid Wash Sales

    If you make hundreds or thousands of trades each year, it¡¯s nearly impossible to comply with wash sale record keeping rules. But active traders have several ways to eliminate this problem.

    The first way to avoid the wash sale rule is to simply wait for 31 days after you sold the stock or option before you buy it back. The second way, which is only available to traders and not investors, is to elect the mark-to-market accounting method. but it's worth pointing out that a trader who makes the mark-to-market election isn't subject to the wash sale rule.
  9. I believe:

    If you report your tax as a trader, then you are not bounded by the wash sale rule. Regardless whether you elect the mark-to-market accounting method.

    How can you be a trader?

    Take a look at this link and other related documents.


    You need to pass 2 tests in the eyes of IRS:

    1) Substantial activity test

    2) Trading activity test

    If you file as a trader, then you can elect for mark-to-market accounting method. It's an election. Not a requirement. There are pros and cons of doing that. I file as a trader but I opt not to have the mark-to-market accounting method (which is the default). Because I am a day trader. I am automatically "marked to market" everyday with my assets. I have no need for such a method to write off assets with paper losses.

    You need to elect this accounting method the year prior. And also there is no going back. You cannot unelect it. So choose it wisely.