If I started day trading right around the 1st of July 2006, which gave me only about six months of trading experience. During that six month time period I made about 400 buys and sells. I ended up with a net loss of about $6,000, in trading about $2.3 million in equities. However, so far in 2007 I'm showing a small profit. Is it worth the time and energy to file with the IRS under the "Day Trader" status for the 2006 tax year? Or would it be better to wait until the 2007 tax year and file as a "Day Trader"? And, would it be wise for me to request the MTM exemption for the 2007 tax year? I plan on day trading full-time for the rest of 2007.
You CAN NOT file MTM for Tax Year 2006 unless you filed the ammendment before 4/15/06. Write off the $3000 Cap Loss and carryover the balance.
Surdo: Thanks for the tip. I know that I can't take the MTM filing status for the 2006 tax, and that if I want to have that status for the 2007 tax year I would have to make that request with my 2006 tax return. What I was getting at is this: Is it worth the money to pay for the TradeLog software to record all of my trades for the 2006 tax, being that I ended up with a net loss, and that I only day traded for about half of the year. I don't want the IRS to audit me for my 2006 tax return. However, if I can take the $3,000 write, that would be great.
TW, my understanding is that you will have to figure out a way to account for all your stock trades individually (TradeLog or some other way), since the IRS wants you to report every stock trade on your tax return, regardless of whether you made or lost money. (In contrast, futures are a line item on the tax return.) "The sale of all stocks, bonds, mutual funds and stock options need to be reported on Form 1040, Schedule D, regardless of whether there was no gain or loss." http://www.irs.gov/businesses/small/article/0,,id=127292,00.html Some day maybe the IRS will allow the broker to report our equity profit/loss (IB shows P/L on the first page of the annual statement), or at least all equity buys and sells so the IRS can figure the equity P/L out. Until then, we seem to be doomed to lots of paperwork.
RANGE: It seems the only option that I have to use TradeLog this year, and include a MTM request in my 06' IRS Tax Return.
TradeLog type software for 90% of taxpayers is totally unnecessary expense if the purpose is merely after-the-fact income tax formating of the trades. Whether you file as an investor, a trader or a M2M trader makes absolutely no difference in that end of the reporting requirement. Depending on how you keep your records... for many many taxpayers the brokerage firm provides trade matching or nearly so via a download or via a printed report mailed to their customer. Software is a nice - especially if one wants to see a report DURING the year to see how progress is going along. There's about a dozen of fine software programs out there. Most under $100, and a few costing several hundreds of $$. For those taxpayers not carrying open positions over from one year to the next, these downloads are almost all perfect for 98% of them.
I forgot to mention WHERE to find all these software packages. Simply Google [ traderstatus software ] and the results will lead you in a few minutes to numerous programs such as the $50 "Simply Track's" Wash Sale Schedule D Generator Software and about a dozen others. Please note that I do not have any affiliation with this software, I am just passing on information I've gathered over the years.