I'm considering filing for MTM accounting with the IRS. I've read a number of web sites (Fairmark, etc.) and I think that I understand the concept as well as the benefits. I'd appreciate any comment regarding any pitfalls you've run into if you've elected this method. A coupla basic questions... 1) "MTM election can only be revoked under rare special circumstances, so it not a step to be taken lightly. Please make sure this is appropriate for your situation." If you're allowed to segregate accounts and use MTM accounting for the day trading and longterm capital gains tax rates on your investments, what's the problem? How could this bite me in the xxx ? 2) "The biggest disadvantage of filing as a trader is audit risk. There are no clear standards for determining whether you are a trader. If you claim to be a trader, and the IRS determines that you are not a trader, you may end up with substantial liability for tax, interest and penalties." I assume that because I trade heavily, I qualify, but how do I make sure that my assumption is correct? My main reason for considering MTM is the suspension of the Wash Sale Rule. It's a royal pain at the end of the year and crimps my activity in January. ----- Also, I've been doing my own taxes for years since other than my Sched. D, they're pretty straightforward. Do I need to find a CPA for this? Or a CPA who specializes in day trading? Or is this just all a formaility once you file for MTM staus? TIA
OK, dumb question. Do you count the buys and the sells or just the round trip as total shares traded? I'm at 7,500 per day if it's the round trip otherwise it's 15,000 per day. Yep, I'll look for a CPA who specializes in day trading. I don't know any local day traders so I'll try the local bean counter society and see if they have any leads. Thanks for your comments.
My figures were approximate and based on round trips. However, imo you should be okay, provided that you traded consistently throughout the year. You can PM me if you need help with picking an appropriate CPA since I would be violating the rules of this site by mentioning the name publicly.
Spin, Check out these guys. I don't know anything about them. but they seem to be knowledgeable about some of the questions you are asking. http://www.edaytradertax.com/tradermtm.php Don
I have thought about this for a long time. Frankly, I don't see any reason to make the mark to market election. Main advantage would be the ability to deduct unrealized losses at December 31. However, there are two things which offset this advantage: 1) Your ability to deduct Schedule D unused carryover losses from previous years will be significantly restricted, and 2) If you are in the business of trading and are incurring consistent losses in excess of your gains, perhaps you might wish to consider an alternative trade or business. Good luck and have a very profitable 2009. 4Q PS: I strongly believe that a buy, sell, or hold decision on any traded security should be based on factors totally apart from tax considerations.