I posted this thread in the self-employment section but didn't get too many responses. Maybe you guys don't read that section, so I thought it might get more attention here as this seems to be the section with the most traffic. This is a topic that has to affect many traders here at ET. If not, didn't mean to offend anyone. --------------------------------------------------------------------------- Ok, I know there's a few traders here in the same situation as myself. We trade from home as sole employees trading both stocks and e-mini futures (and possibly open-outcry futures/options). Stocks and futures are treated differently for tax purposes. We know that MTM election should be made for stocks but not for futures due to the differeing tax consequences. My question to you other traders is how are you setting up your tax returns to reflect these two different trading "businesses"? Are you filing 2 businesses under 1 individual with 2 schedules C's and 2 schedule D's? Have you put in your letter to the IRS to elect MTM just for your stocks business, but not the futures business? Looking for advice and ideas from anyone else. Thanks in advance.
IMO there is no need to set up more than one LLC or sole proprietorship. Regulated futures contracts require you to use IRS form 6781 "Gains and Losses from Section 1256 Contracts and Straddles". Simply report your income (hopefully) on that form to pay the blended capital gains rate for that income. Equity gains, losses, and dividends go on other forms - and, incidentally, you will pay a higher tax rate than the futures. Just like if you sold some real estate that you held for less than two years and it was not your principal residence, you would report that income on a capital gains form. If your principal job is a software engineer, you would report that W-2 income somewhere else. That's why the IRS has all these different forms to treat different types of income and deductions. How do you think a hedge fund does it?