Trader Taxation vs. Commodity Trading

Discussion in 'Trading' started by limitdown, Nov 21, 2002.

  1. what is it with the designation between Trader Tax Status and Commodity trading. From a limited understanding, when you trade Commodities (E-Mini's, etc.) this places your Trader Tax (presumably from Bonds, Equities, Options, non-commodities) status in jeopardy.

    Can any one explain?
  2. cheeks


    I am sorry. I am not sure what your question is.

    Are you asking if electing trader tax status nullifies the 60/40 futures tax advantage?
  3. no, there is much confusion

    Trader tax status: All that means is you are a full time trader and the IRS realises it so therefore you can deduct trading related expenses.

    You don't apply for it or sign anything, it doesn't matter if you trade stocks commodities, futures, options, it don't matter.

    You simply fill out a sched c and say you are a trader and enter your expenses (but not your profits or losses) on it and you deduct that amount from your tax liability.

    Trader tax status is often confused with mtm (marked to market) election. mtm is a bad deal for futures traders, because you lose the 60% long term capital gains tax advantage.

    But many stock traders find mtm advantageous since they don't already have any tax advantage. mtm is an election you can make, you must elect it, and sign it and send it in and I don't know what all by April 15 of the year you are taking the election. That's why it is a piece of crap for futures traders, because the only way mtm helps a futures trader is if he has a loss.

    So I suppose the best strategy is to trade futures Jan Feb and Mar, and if you are a loser, elect mtm, then go trade stocks, since mtm doesn't hurt a winning stock trader.
  4. I'm not sure if "tax liability" is the right word. At any rate, you deduct expenses from your profits from trading.

    I think tax liability is how much tax you owe.
  5. MTM is almost manditory if you trade the same stocks all the time and don't want the freakin hassle of wash sale rules.

    Problem is you lose the 60/40 thing on futures, which doesn't make any sense to me, but there it is.

    Still trying to figure out if there's a way to have it both ways.
  6. The only time MTM is advantages with futures is if you have a BIG loss. Thus everything becomes ordinary loss and deductible in excess of the $3,000 capital loss limitation. Other than that one issue, it's a loser to be MTM if you are a futures trader and profitable.