you probably should consult with a tax pro as to the 475 election. being a daytrader does not automatically qualify you to make a valid election. they can review your activity and advise you as to whether you qualify. here are the IRS criteria - you'll notice there are no numbers as to the number of trades or hours you must spend.
You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation;
Your activity must be substantial; and
You must carry on the activity with continuity and regularity.
The following facts and circumstances should be considered in determining if your activity is a securities trading business:
Typical holding periods for securities bought and sold;
The frequency and dollar amount of your trades during the year;
The extent to which you pursue the activity to produce income for a livelihood; and
The amount of time you devote to the activity.
If the nature of your trading activities doesn't qualify as a business, you're considered an investor and not a trader. It doesn't matter whether you call yourself a trader or a day trader, you're an investor. A taxpayer may be a trader in some securities and may hold other securities for investment. The special rules for traders don't apply to those securities held for investment. A trader must keep detailed records to distinguish the securities held for investment from the securities in the trading business. The securities held for investment must be identified as such in the trader's records on the day he or she acquires them (for example, by holding them in a separate brokerage account).
the IRS has audited some taxpayers making the election and found that they weren't doing enough trading or spending enough hours. It then goes back to the earliest year and treats the trades as if the taxpayer was an investor and thus subject to wash sale rules. schedule C deductions are eliminated. as a result the taxpayer usually gets a big tax bill.
