Mark-To-Market

spindr0 · Jan 24, 2009

I realize that I need professional help but until I can find that, ET experts are all I have.

An accountant acquaintance who professes no experience with Active Trader status tossed out the idea of setting up a separate LLC whose purpose would be to trade securities. The LLC's activities would be reported on Schedule C with investment activities continuing to be reported on Schedule D. The LLC would be subject to the accounting rules it sets with its first filing and therefore one could achieve MTM status this way.

Thoughts?

bigpig41 · Jan 24, 2009

BUT , can you only go against those prior two year's incomes IF that income was from TRADING WHILE USING MARK TO MARKET ACCOUNTING THAT YOU HAD ELECTED DURING THOSE TWO YEARS ?? or could your 2008 losses as a trader in 2008 who had officially elected MTM accounting with the IRS go against your ordinary income as a carpet cleaner in 2006 that you had at the same time that you broke even as a trader in 2006 who hadn't elected MTM accounting with the IRS for 2006 ??

dumbgai · Jan 24, 2009

Can anyone else confirm this. MTM traders can carry forward their losses to future years and pay less taxes in future years.

Quote from spindr0:

I'm not sure that's the case. Here's some more cut and paste info

First of all, an MTM trader is truly in the business of trading! This means, that his trades generate no capital gains or losses - rather, all his transactions are reported on Form 4797, then transferred to Schedule C as ordinary income or loss (A memo to IRS must be included, explaining the procedure). To him, winning trades are simply income, losing trades are a loss to be deducted from his income. He need not worry about the $3000 net loss limitation that applies to investors and traders.

At the same time, the MTM election means loss of the tax shelter on existing positions - the MTM trader reports not only his completed trades' income and losses, but also the unrealized income or losses on any positions open at the end of the year. This is where the common name of the election come from - the trader marks to market value his open positions at the end of the year and reports the unrelialized profits and losses in his Schedule C for that year.

Because his activities result in ordinary income or loss, an MTM trader with a loss for the year is able to deduct his loss fully against his other income, or against his spouse's income (in a joint filing). In addition, a net operating loss from his trading business can be carried back two years by re-filing for those years, and/or carried forward 20 years.

Because of the different tax rates on ordinary income and capital gains (especially long term), the MTM trader needs to ensure that his investments (if any) are segregated in a separate brokerage account from his daily trading, to ensure proper accounting. That way, the MTM trader can continue to take advantage on the long term capital gains tax rates on his investments.

Wash sale rules have no impact on the trader who has elected Mark to Market accounting
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ak15 · Jan 24, 2009

http://www.greencompany.com/EducationCenter/GTTResources.shtml

There is a lot of information on this site. You need to browse through quite a bit.

spindr0 · Jan 25, 2009

Quote from dumbgai:

Can anyone else confirm this. MTM traders can carry forward their losses to future years and pay less taxes in future years.
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LOL. Accounting methods do not cause you to lose the ability to deduct losses or carry them forward. They only determine how they are treated (ordinary vs capital gain) and how much you can deduct in a given year.

And FWIW, if two or even twenty people here said otherwise, would that make it a fact? Do a web search on Mark-To-Market and read the info. Judge for yourself or get professional help (which is what I need

dragoljubce · Mar 22, 2010

Quote from Don87109:

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
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Thank you for the link! You made my life easier, i.e. I will not try to do LLC, or C-Corp or to ask for Mark-to-Market election. The bottom line is that I am not sure that I can qualify as a trader. I am trend following, swing trader with 6 months of active trading. I searched everywhere for the solution, but this made my mind in the end (to do nothing and file 1040 as usual).
http://www.edaytradertax.com/tax_myths_entity.php

Getting away from wash sales with MTM is attractive, but if I lose more than $3,000/yr then I don't deserve to trade in the first place, IMHO.

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Mark-To-Market

spindr0

bigpig41

dumbgai

ak15

spindr0

dragoljubce