No. It is not the IRS that is the problem. The wash sale rules are not what cause most traders to lose money.
The wash sale rules were put in place to avoid "playing games" at the end of the year.
Being able to claim trader tax status (TTS) is not accomplished by any election; it is an optional tax status and is based on facts and circumstances each year. So someone can qualify as a TTS in one year and not the next.
Qualifying for TTS is a subjective test based on case law:
- trading activity must be substantial, regular, frequent and continuous, and
- the taxpayer must seek to catch swings in daily market movement and attempt to profit from the short-term changes instead of looking at longer term holding investments.
Volume, frequency and average holding period are key items that the IRS will look at.
Based on a tax court case, leading commentators recommend an average of 4 trades per day, four days a week, 16 trades per week, 60 trades per month and 720 per year on an annualized basis.
Holding a regular job, as noted in one of your responses, may cause higher scrutiny.
Keep in mind, that TTS doesn't change how you report your gains and losses; they will still be short-term gains and losses subject to ordinary income and capped at the $3,000 per year in loss limitation.
The only way around that, is the Section 475 election.
What the TTS allows the taxpayer to accomplish is to take expense deductions on Schedule C.
Staying informed and staying ahead of the wash sale rules at the end of the year will be key.
Good luck.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
