I have an LLC opened for my stock trading business. I am a day trader. Someone said, I can report all of my stock related expenses on Sch C and Capital Gains on Sch D. But then my sch C would have negative income loss. wouldn't this create red flag.
This is correct reporting for 2022 unless you qualify for and made the 475(f) election by the original due date of your 2021 return.
Someone also said, I can create another stock trade as negative on my sch D, so that my net capital gain would be zero and then show my capital gain as income on sch C?
NO NO NO under no circumstances do stock trades get reported on schedule C unless you like notices from the IRS. That would also subject any net profit to self-employment taxes. If a net loss because of the stock trades, you would probably materially understate your taxable income.
Others says, I need to get MTM status and generate 4797. I have not elected MTM status. this is for my 2021 & 2022 taxes. I have 1000s trade transaction so I know am active day trader. Do I elect MTM status by attaching a statement to my return? is this correct? how does MTM status filing works? do.
generally, those transactions need to be short term. the IRS sees a trader as a person that seeks to profit from price movement and not from dividends, interest or capital appreciation. Your activity must be substantial; and you must carry on the activity with continuity and regularity. also looked at is 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.
you'll have to wait until you file your 2023 tax return or extension to make the election for 2024 since the due date for filing the election for 2023 was 4/17/2023 with a timely filed 2022 return or a timely filed extension for it.
So, since I have LLC opened, which options above applies to me?
a single-member LLC is disregarded for tax purposes so the above would apply to your 1040. if it's a multi-member - a partnership return would be required and that could create issues if one or more partners/members were not active traders.
MORE INFO
The Mark-to-Market Election generally used to avoid the issue of wash sales. Until the year the election is in effect, you must treat the gains and losses from sales of securities as capital gains and losses and report the sales on Schedule D or Form 8949, as appropriate. When reporting on Schedule D/8949, both the limitations on capital losses and the wash sales rules continue to apply. Once the election is in effect you treat the gains and losses from sales of securities as ordinary gains and losses (except for securities held for investment - use of a separate account is advisable) that must be reported on Part II of Form 4797. Neither the limitations on capital losses nor the wash sale rules apply to traders using the mark-to-market method of accounting. You make the election by attaching a statement either to your income tax return (must be timely filed) if filed without an extension or to a request for an extension (also must be timely filed) of time to file your return. The statement should include the following information:
That you're making an election under section 475(f);
The first tax year for which the election is effective (that is, the tax year for which a timely election is being made); and
The trade or business for which you're making the election.
Refer to the Instructions for Schedule D for more information on how to make the mark-to-market election. It's important to note that in general, late section 475(f) elections aren't allowed.
After making the election to change to the mark-to-market method of accounting, you must change your method of accounting for securities under Revenue Procedure 2022-14, Section 24.01. In addition to making the election, you'll also be required to file a Form 3115, Application for Change in Accounting Method. Publication 550 describes the procedures for making an election under the section called "Special Rules for Traders in Securities." Non-filing of the Form 3115 mentioned above won't invalidate a timely and valid election.
If you've made a valid election under section 475(f), the only way to stop using mark-to-market accounting for securities is to file an automatic request for revocation under Revenue Procedure 2022-43, Section 24.02. Under that revenue procedure, the request for revocation must be filed by the original due date of the return (without regard to extensions) for the taxable year preceding the year of change (the year of change is the first taxable year the revocation is to be effective). This revocation notification statement must be attached to either that return or if applicable, to a request for extension of time to file that return. Late revocations won't generally be allowed except in unusual and compelling circumstances.
I also have another real estate business. which I had more loss. would this offset my total taxable income?
maybe. maybe not. as a trader you most likely would not meet the rules to be treated as a real estate professional (REP) and thus would be subject to the real estate passive activity rules which could limit the losses - form 8582. However, the PAL rules don't apply and you don't need to be a REP if substantial services are provided to the renters and the rentals are short-term - 7 days or less on average, this activity goes on schedule C otherwise rental activities go on schedule E.
see his link for the REP rules. Note the 50% rule which could make it difficult to be both a REP and a trader.
https://www.fortunebuilders.com/real-estate-professional/
