Mark to market

Discussion in 'Taxes and Accounting' started by piggie, Aug 10, 2005.

  1. piggie


    Before I place my first trade, I would like to have my tax situation settled. Two choices I know of : Form a llc or S corp and trade under it, or get the mark-to-market status.

    What's the best and quickest way to achieve this status?

    Do I need the Series 7 license in order to obtain the status? If so, I will have to join a nasd registered prof/prop firm which usually asks for $5000 to open an account. Money is not an issue, but some firms have restrictions such as paying for 12 month software fee before allowing me to withdraw the money.

    Has any independent trader achieved the mark-to-market status without any license nor being associated with any brokage firm?

    Any other suggestionw related to the tax situation are welcome

    Thank you.

  2. If you are just starting trading then the most common tax scenario would be a carry over of a capital loss to the next year.
  3. piggie


    Not quite a newbie trader. I should have said "before placing my first trade as a full time trader and with the professional trader mentalilty". I am around the break even to ~$100 a day level.

  4. if you are a beginner do nothing until you show the ability to make money. until then just trade as a sole prop.
  5. piggie


    The real issue is that, as a retail trader, I have to report literally thousands of trades to IRS every year even if I had a loss. That was a dreadful experience....

  6. Ebo


    Make your life easy, trade futures.
    One number to report year end, and better taxation.

    MTM trader status needs to be filed before 4/15 for the year.
  7. Series 7 has nothing at all to do with trader status or the separate mark-to-market. I'd suggest that there are far, far more people with a Series 7 who do not have trader status, than the other way around.

    If you do want the "insurance" of having M2M for 2005 and/or you have decided that you are willing to incur the red tape and expense of using a separate entity, then the quickest way is to form the entity, properly, which includes having a meeting of the owners right after you're "legal" and vote on properly electing M2M for 2005. Properly record the result of the vote in the entity papers and you're all set.

    BTW, perhaps I read into your posting that you implied that the rules of record keeping might be simpler with trader status and/or with M2M. In fact, the opposite it true. To run a trade or business you must maintain proper business records. So trader status has equal or greater record keeping than does investor status. And M2M has equal or greater record keeping than does trader status alone.

    Reading between the lines even further perhaps you were implying you did not have to match trades if you achieved trader status and/or M2M. Again this is not true. What is true is that some people skimp on providing those details on tax returns. Whether one is investor status, trader status and/or M2M would have absolutely no bearing on this kind of unofficial deviation with one’s tax reporting. Officially the reporting is basically identical, and therefore unofficially for those who believe they should suppress some level of details, there is basically no difference among the various status chosen.
  8. piggie



    Thank you for the post. It is very informative.

    Yes, my naive thinking was that trade records or trade matching does not have to be reported to the IRS with the M2M status. Although using software like Quicken to report trade records was not too painful, I was not pleased when I had to add about 50 pages to my tax return.

    From what I have read, there are many tax advantages to have the M2M status, and I hope to get the status for 2006.

  9. Spend some time at to get a better idea about taxes. In particular check out their method for reporting gains. I did 1 line per acct on schedule D (before I went M2M) using their method. Otherwise I'd have thousands of pages.

    Regarding your expenses, they can be deducted on schedule C regardless of whether you choose M2M or not. It all depends on whether you can prove you are trading as a professional. The greencompany site has info on this somewhat vague definition as well.

    And to be clear, I trade independently through a retail account. I get to deduct all my trading related expenses on schedule C and my accounting is done mark to market so I could take a loss beyond the schedule D maximum if I needed to.

    Finally, forget about series 7. You need to be sponsored by a firm to get one and it has no bearing on your status as a professional.
  10. Wow, 2,000 pages with say 50 lines per page if you used large type is 100,000+ sells per year! I can see why you like your method. I did not mean to suggest whether reporting details or suppressing details is "better" one way or the other. But people should be not be blindly unaware that the IRS requirements differ:,,id=127292,00.html
    Day Traders
    Error: Day traders are reporting transactions and expenses on the wrong tax form.

    Tip: For stocks, bonds or exchange traded options on individual company stocks, the trades are generally reported on Form 1040, Schedule D, Capital Gains and Losses,<b>with each trade recorded separately. </b> However, if the taxpayer previously made the “mark to market” election, <b>each transaction is reported</b> on Form 4797 instead of Schedule D.
    #10     Aug 11, 2005