First you must qualify to be a trader. previously posted what the IRS looks at. As you can read there is no definitive definition of who is a trader. if you qualify, you have the following options. 1) don't make the 475(f)election. In this case, your gains and losses are capital in nature and you are subject to the wash sale rules. 2) make the 475(f) election. In this case, trading gains and losses are ordinary income and are not subject to the wash sale rules. If this is not your first year trading, regardless of trading as an investor or trader form 3115 is required to report the IRC 481 adjustment. This is the difference between the market value and tax basis of the trading securities you hold as of the end of the previous year - the year before the 475(f) election takes effect. in subsequent years you pick up as income or loss the unrealized gains or losses on trading securities at year-end while taking into account the unrealized gains or losses you reported in the previous year.
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for the 475(f) election to be effective it must be made with the return or extension filed on or before its original due date for the year prior to the year the election is to become effective.
for example, if an election was not made by a timely filed return or extension by the original due date of the 2023 return it's too late to use M-T-M for 2024. your next opportunity is to timely file your 2024 return or extension for the election to become effective 1/1/2025.
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whichever needs careful thought. Getting off M-T-M requires essentially the same procedure as getting on including timely filing of the return or extension for the year before the year the revocation is to take effect.
It should be noted that taxpayers cannot freely elect in and out of mark-to-market treatment. A waiting period of five taxable years is required before an automatic change can be requested to resume using mark-to-market treatment which would again require you to file a timely election along with the 3115.
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I strongly advise you consult with a tax pro if the election is not in effect to go over your trading activity and get advice. such as whether you clearly qualify as a trader or it's marginal. costs vs benefits
