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Day Trading: Mark-to-Market 475(f) Election?

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Los Angeles, CA
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SMCJB View Post
I believe that in order to qualify for the mark to market election you must qualify as a business trader. That means you need to show the IRS that trading is a business and not an investment. Number of trades is one thing they look at, but also the number of days you trade, and the amount of time you spend in the business. I understand that if you have a full time job, while it's not impossible to get trader status, it does get considerably more difficult.

Trader status by itself gives many advantages including deduction of trading expenses, home office expense, pension plans etc etc. The big thing Mark-to-Market gives you, is the ability to take losses as ordinary losses, which are not subject to the capital loss limitation.

I do have trader status. I do not make the mark to market election.

I did some more research into the number of trades required to qualify for mark-to-market. This CPA created video tells us you only need to make 60 trades per month or 720 total trades per year and you "count the buy and sell, or open and close, separately." This means you only need to make 360 round trips per year total or 1.44 round trips per day if you have 250 (50 weeks x 5 days per week) trading days per year.

Regarding number of days to trade, the CPA advises you trade at least 75% of the available ≈240 days or 180 days (240 x 75%). 720 total trades/180 days ≈ 4 total trades or 2 round trips per day.

Regardless of how you calculate the number of days you trade, as long you are trading in a consistent manner, the total number of round trips should be 360 round trips to quality for mark-to-market. This number is much lower than I thought only 2 weeks ago.

Of course, you should not rely on my information or a YouTube video. You should consult a local CPA, if you can find one, who understands these daytrading issues. You will probably need to call many different local CPA's before you find one who even knows what you are talking about. I don't think I will be using Green Trader Tax because their sales and marketing office is located in Connecticut and their operational office is listed as a PO Box in Alabama. I prefer to have a CPA who I can drive to if there are any problems.

I will buy the Green's 2018 Trader Tax Guide in PDF format though. If you claim mark-to-market, can you have long-term investments in a separate account and claim the long-term capital gain tax rate for long-term investments? You used to be able to call the IRS and ask them tax questions. You can no longer do this. Today, you must find information wherever you can. Congress must have cut back on funding for this.

Last edited by techstocktrader; February 21st, 2018 at 08:06 PM.
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