Apologies in advance if this is the wrong forum. In another topic I stated that I am opening a pro trading account per my CPAs advice. I am running into some issues understanding a topic he brought up...basis. He is essentially trying to reduce my tax year AGI through a trading entity and/or help me manage capital gains for earnings. He keeps saying that I can deduct certain items if I have "basis" for them. For instance...say I have a cost basis of 100K for all of my trades...I thought that that would be my tax basis. He says no...says only the amount you invested plus earnings are basis. So if I start with 10K and keep buying and selling with that same 10K my basis for write-offs is only 10K even though I might have invested that 10K ten times (plus earnings). Is this correct? He does not seem overly familiar with trader status as he said that I can only deduct 3K per year of loses and if I have more...would have to roll them out at 3K per year. Isnt it true that if my entity is trading as a pro (i.e. trader status) that I can deduct more than the 3K? I trust this CPA, he has worked with several law firms I know for years and they highly recommend him...just worried that I am not understanding the basis topic and also a little worried that he wants to treat the formed entity like a regular entity (i.e. the 3K max pass through loss) and not a trader status entity. Am I misunderstanding how this works? Any advice is greatly appreciated!!!!!!! Thx again everyone!!!
The $3k loss limitation applies to both investors and traders in securities. However, if you qualify for and claim trader status, you optionally may also elect mark-to-market accounting under Section 475 . But MTM accounting is not automatic and not the same thing as trader status. There seem to be a lot of people confused about that. MTM accounting allows you to apply losses to prior years' taxes.