Listen to who your dad wants you to hear. Then listen to an CPA who works with a lot of traders. Different CPA's can give very different advice. What you want is to hear advice from someone who works with a lot of traders. For your situation I would want MTM. I can't think of a reason not to have it if you are as active as you are and the amount of income you are generating through trading. Getting rid of the wash rule for you is key. Have your father's family friend figure out the difference with this rule alone. It should make a huge difference to the bottom line. Robert Tharp
www.tradertax.com was already recommended but also visit the opposite www.taxtrader.com for more info. Study both of these sites and send them emails about your situation. Robert Tharp
The following links also contain a wealth of information regarding tax strategies for traders: http://www.traderstatus.com/mark2mkt.htm http://www.daytradingstocks.com/traderstaxes.html I have no affiliation with either site; both are great info sources. RS
There's something nobody has mentioned here. I haven't looked into it since last year, but from my memory the greatest advantage is being able to write off more than $3,000 in losses in one year, which you cannot if you don't. Otherwise, you have to carry it forward into other years. Is this correct? I plan on electing MTM for 2002, and look forward to hearing any reasons not to. Johnny
I see the benefits of MTM for someone who loses money, but what about someone who generates a large income? Capital gains rates are capped at 28% vs. a potential 39.6% for regular income (at least they were in 2000). So if your making over 100K then it would seem like paying the capital gains rates of 28% is better than paying a marginal 31%, 36% or 39.6% (Clinton surcharge). If your going to lose money for the whole year, then why be a trader? I would quit and find a job. I guess I don't see the grand scheme of why MTM is so much better for a trader? Is the direct deduction of expenses on sched C. Vs. Itemizing and being subject to the 2% floor the big benefit to the successful trader? I need to make a decision for next year, so I'd be interested if someone can point out the flaws in my thinking.
Beware the Mark-to-Market trap. If you have substantial previous capital losses to carry forward on Sched D, it may be more beneficial to elect Mark-to-Market in a year after these have been used to offset capital gains. After the election, M-to-M gains/losses are reported on Form 4797. Thus previous carryover losses will be "locked in" to Sched D except for the $3000 yearly allowable to offset ordinary income. Just my thoughts..... RS
If you have a carryover, wouldn't the first year of MTM (presumably gains) serve to offset those anyway? If I am carrying a 20K loss into this year and make 20K in 2002 under MTM, wouldn't that wash? I understand the 20K gain is income and not cap gain, but then how would I get the 20K loss back if those do not offset? You bring up an interesting point.
If you have a carryover, wouldn't the first year of MTM (presumably gains) serve to offset those anyway? No, ordinary gains does not offset capital losses. If you elect mark-to-market, your capital losses would be trapped. ordinary gain offsets ordinary losses capital gain offsets capital losses once you elect mark-to-market, all gains and losses are considered ordinary. If I am carrying a 20K loss into this year and make 20K in 2002 under MTM, wouldn't that wash? No, not at all. I understand the 20K gain is income and not cap gain, but then how would I get the 20K loss back if those do not offset? You can deduct 3k a year for 7 years.
Made a mistake in an assumption about short-term capital gains. They are treated the same as ordinary income now! Wow, I'm behind the times.
can someone just make a summary of all the possible negatives of being mtm for the comming year. I really can't seem to find any major ones. I don't have many longer term trades, so I don't mind paying for their gain/loss as of dec 31/2001 (this year all my long terms are long terms b/c they are lossers so far).