Market to Market election

Discussion in 'Professional Trading' started by Rowan128, Jul 27, 2005.

  1. Rowan128


    Ex. Say for the tax year 2005 Joe Schmo had an unsuccesful year

    Joe Schmo made 250,000 in profitable trades, but then lost $300,000 on unprofitable trades.

    So for the year it was -$50,000 loss

    Will there be any taxes paid on this trading year?

  2. Is Joe Schmo flat, i.e. have were all the trades closed when the year ended? If so then I would say: No, not with regard to trading anyway? Did Joe Schmo work anywhere else or have another income stream? And welcome to wonderful world of carry fowards: :-S (yes i'm being sarcastic).

    If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed is limited to $3,000, or $1,500 if you are married filing separately. If your net capital loss is more than this limit, you can carry the loss forward to later years.
  3. mss


    I think that, if a trader makes a mark-to-market election, his or her trading gains and losses are treated as ordinary rather than capital. As a result, I think that $3,000 limitation does not apply.
  4. its too late to make the m to m election for this year.
  5. Rowan128


    Joe Schmo already made the market to market election
  6. Ebo


    He generates a Net Operating loss (NOL) carryover.
  7. There would be no taxes paid this year and there would be a NOL carryover to the following year that could be used against any future profits.

    If he is married and files a joint return with his spouse, then he may be able to use some (or all) of the loss to offset his spouses income. Or if he has some other form of ordinary income, he may be able to offset this income with his loss.

    This is assuming that M2M was made before the April 2005 deadline.

    Disclaimer: I am not a practising tax accountant and believe that any serious tax questions should be asked of an accountant familiar with Trading tax laws.

    PS, using the name Joe Schmo may raise a red flag with IRS. He should petition for a name change. :)
  8. If Joe Schmo generated $50K in net losses trading for the year, and he is married, I suggest that he contact a good family law attorney, because he's about to get divorced -- he just doesn't know it, yet.