Investors & landlords

A qualified trader (someone with Trader Tax Status) is allowed to deduct business expenses on Schedule C (Form 1040) Profit or Loss From Business (Sole Proprietorship).  This includes taking Section 179 deductions and expensing (or capitalizing and depreciating) equipment used in trading activities.  Commissions and other costs of acquiring or disposing of securities aren't deductible but must be used to figure gain or loss upon disposition of the securities.  Gains and losses from selling securities from being a trader aren't subject to self-employment tax.

 The IRS defines a qualified trader as one who trades often and continuously to profit from the short-term fluctuations in market prices. To become a qualified trader, you must trade on a full-time basis. Trading must be the majority of your income. Traders make multiple trades per day and research, document, and educate themselves on the art of trading.

See IRS Topic no. 429, Traders in securities (Information for Form 1040 or 1040-SR filers) for more information.

If you are not a qualified tax trader, the IRS does not consider trading to be a business, all income earned is considered unearned or passive income.  Your income isn't subject to self-employment taxes. You can't deduct normal business expenses, even though the costs incurred to become a successful trader can be significant.

There are no rules regarding how your broker/dealer tracks and reports gains and losses.  If your brokerage firm doesn't offer mark-to-market you can still use it, however, the tracking could get cumbersome.  There are software programs available that will compute gains and losses, and track cost basis using mark-to-market.  If you trade enough to qualify for Trader Tax Status, and your broker doesn't offer mark-to-market accounting, I recommend using one, if you have made a mark-to-market election under Section 475.