Mark-to-Market election

[9ktfor]

Hi Ryan,

As a trader the most often asked question is when should I enter and
exit a trade. When filing a tax return, it would seem one of the most
common question is, "When should you file as a trader instead of an
investor?" So, In your opinion how and when is the best time to "elect"
to do this?

Thanks,

Jess

[Ryan Gibson]

Hello Jess,

Unfortunately meeting the IRS definition of a Trader is not a check the box election and requires planning. There are many benefits to meeting this status, but some will not meet the stringent requirements. Others may be able to with the use of a legal entity such as a Corp or LLC.

What is the difference between a Trader and Investor?

As a trader, you trump investors in two main ways: you can fully deduct all of your trading expenses and you can write off 100% of your losses in one year (provided you elected the mark-to-market accounting method).

Investors who itemize their deductions on Schedule A are limited to a handful of deductible investment expenses, including legal and accounting fees, investment counseling and advice and investment newsletters. These must be listed as miscellaneous itemized deductions and can only be deductible to the extent they exceed 2% of adjusted gross income.

As a trader however, you can deduct all of your business-related expenses, including your data feed, dues and subscriptions, equipment, utilities, seminars, transportation, travel and entertainment, and the home office deduction if you work from home.

Regards,
Ryan Gibson