Trading tax question

Discussion in 'Taxes and Accounting' started by huby, Nov 14, 2001.

  1. huby


    What does it mean when you file your trading income/losses as "marked to market"? Someone told me this allows you to carry over a loss to the next year just like a corporation can. Is this true?
  2. Mark-to-market (MTM) is an IRS election for traders that allows you to price all of your holdings at 12/31 as if they were actually sold on that date. There are restrictions on when one can make the election - for the current tax year, it must have been made by April 17, 2001 (i think that is the correct date - if not, its within a day or two). The benefit of MTM is that you no longer are required to calculate 'wash sales' on all your trades throughout the year. In addition, MTM filers are not held to the $3,000/year loss limitation as an investor would be. So instead of carrying a loss forward, you can claim it all in the current year.

    There are other requirements to be able to file an MTM election. You may want to check out

    Good luck
  3. Haas


    Does anyone know what an active futures trader would do about MTM status. As I understand it, the upside is that one would be relieved of the $3,000/year loss limitation , the downside is that all proceeds would be taxed as ordinary income instead of the 60/40 preferential gains treatment that futures trading usually gets. Since wash sales are not an issue in futures trading, I believe these are the only two effects of MTM status for a futures trader. Any futures traders out there that can confirm this (or have any other suggestions for tax time)? Thanks.

  4. kenstl


    If one elects MTM status, is he/she bound to claiming professional status with the exchanges?
  5. tymjr


    Haas: “Does anyone know what an active futures trader would do about MTM status.”

    Never been an issue for me. Futures accounts are MTM daily.

    kenstl: “If one elects MTM status, is he/she bound to claiming professional status with the exchanges?”

    Not to my knowledge.

    I am not an accountant nor do I do prepare my taxes. I believe the info above is accurate, though.
  6. Haas


    tymjr. It is hard to find info on tax treatment for futures daytraders. Thanks. Haas
  7. I started a thread in this forum on taxes for futures traders. It seemed to run dry, so I will post here.

    Regarding stocks mark to market is fairly straight forward. Also for stock traders there is no obligation to pay self employment tax (social security tax).

    However for futures it is not so clear.

    I understand mark to market accounting is used for futures traders. Does one need to make any IRS filing similar to that needed for stock traders?
    Are futures traders subject to self employment taxes?
    Do futures traders file taxes in a similar way to stock traders? ie. are trading gains/losses reported on form 4797 instead of schedule D?

    I would appreciate any input from fellow futures traders on this. I switched from stock to futures trading a few months ago. Would my mark to market election for stocks apply (if it in fact needs to apply) for trading futures?


  8. Hi all,

    I filed a Mark-to-Market election application April of this year for this tax year, but I haven't received anything from them yet. Do you guys receive any confirmation at all? Or can you just proceed to elect MTM status when doing taxes by April 2002--as long as you know that they've received your election application?
    Thanks in advance for your help.

  9. Haas


    stockoptionist - Just a thought. I am trying to learn more about the best filing status/tax strategy for futures traders. I still do not have the whole picture, but I have learned a few things - one of which seems to relate to your situation.

    I know that MTM filers are not held to the $3,000/year loss limitation. MTM filers trading proceeds are treated as ordinary income instead of capital gains/losses. I know futures are marked to market each day, so futures traders do not need to worry about wash sales. Futures traders get the benefit of preferential capital gains treatment (futures are taxed as sixty percent long-term capital gains and forty percent short-term capital gains, regardless of how long positions are held).

    The downside of MTM election for futures traders seems to be that you have to pay taxes as ordinary income and lose the 60/40 capital gains treatment. The upside is that you are not held to the $3k/ year limit.

    This is how I understand the MTM election for futures traders. If I am mistaken, I would appreciate someone correcting me. Thanks.

  10. Hi All.

    I am thinking of moving from a prop firm to a retail firm to trade options and have been investigating different DAT firms. IB seems to be a decent firm which offers no-frills,reasonably stable platform. One of the questions I can't find an answer to in these boards is about taxes specifically the trade list at year end to supplement Schedule D

    At the end of any trading year, I need to show the IRS a detailed buy and sell list of ALL my trades. When I had a retail account with Spear Leeds, I had to pay for the printout-it came in a Manila envelope about half a foot thick, and even though I had to pay for it it was the best $100 I've ever spent since it saved me a lot of time. Does IB provide some sort of printout? THANKS for your help.
    #10     Nov 18, 2001