A qualified professional from Traders Accounting has extensive experience in both tax laws on traders and tax preparation for traders. You should take the time to discuss mark to market election with us before dealing with complex and rigid IRS procedures for making a timely and proper election. Traders Accounting professionals have knowledge of the business of trading and the markets. Profit or loss for the current year to date, unrealized profit or loss from the prior year end, the type of securities traded, any capital loss carries over, and all the specific and unique aspects of your particular tax situation should be taken into account. Every trader must carefully consider electing mark to market accounting as there are benefits for all traders. However, a circumstance where certain tax situations can limit some of these advantages. “Elections under Section 475 have potentially enormous upside advantages to virtually all qualified traders and almost no disadvantages.”
Traders Accounting Offers Consultations for Mark-to-Market Election
Traders who wish to reap all the benefits of a Section 475 election may do so by forming a new trading entity which can make the election by placing a statement with the required wording in its books and records within the time limit set by Publication 550. Traders who trade Section 1256 contracts (commodities, index options, etc) or who have significant capital loss carry forwards, or have a unique tax situation, should consult a qualified tax professional at Traders Accounting about a Section 475 election. It is critical to get professional advice to determine if it is appropriate and whether a new trading entity should be created to take advantage of Section 475.
Main benefits for market traders – Mark-To-Market Accounting
Securities can be identified as investment positions and need not be marked-to-market at year-end and subject to the tax on unrealized gains. This can be used as a practical planning tool, in some cases, to allow a trader to carry over losses and still allow a trader to claim the benefits of Section 475 mark-to-market accounting. A trader would still have the ability to have long term capital gains taxable at the lowest capital gains rates available. New traders, without a proven track record, and new entities recently set up for trading should strongly consider making this election. In the current state of trading and market environment, mark to market election can act as a hedge or insurance policy from a potentially unprofitable year and allow you to apply losses backward or forward against income from a profitable year.
The $3000 limitation on deductible capital losses does not apply. Trading losses are transformed into ordinary income which are fully deductible with no limitation.
Net operating losses, created by ordinary trading losses, can be carried forward to offset future income.
Deferred losses on wash sales are fully deductible against gains and cumbersome record keeping requirements, related to wash sales, are eliminated.
Easier to segregate and report investment profits (potential long term capital gains) from trading profits by using separate accounts.
The Section 475 Mark-to-Market election changes the accounting method for securities and commodities – IT DOES NOT DETERMINE TRADER STATUS. While a Section 475 election does not determine Trader Status, it is only available to Traders – not Investors. Note the first sentence of Section 475(f) makes it available “[i]n the case of a person who is engaged in a trade or business as a trader in securities and who elects to have this paragraph apply to such trade or business…”
A qualified professional from Traders Accounting has extensive experience in both tax laws for traders and tax preparation for day traders. You should take the time to discuss Mark-to-Market with us before making this election due to the complexity and rigid IRS procedures for making a timely and proper election. Traders Accounting professionals have knowledge of the business of trading and the markets. Profit or loss for the current year to date, unrealized profit or loss from the prior year end, the type of securities traded, any capital loss will carry forward, and all the specific and unique aspects of your particular tax situation should be taken into account.