i think it's much simpler. if you are a trader that has not made a valid 475(f) election and not trading regulated futures contracts (The following is an example of a federal statue defining the term regulated futures contract. According to 26 USCS § 1256(g)(1), the term "regulated futures contract" means a contract:
(A) with respect to which the amount required to be deposited and the amount which may be withdrawn depends on a system of marking to market; and(B) which is traded on or subject to the rules of a qualified board or exchange), you are subject to the wash sale rules. the broker would be required to increase the tax basis of a purchase that causes a wash sale by the loss that is not recognized (of course if your using a foreign a/c this won't happen so you would have to do it yourself). to realize that loss you would have to sell the security with the loss and not enter into a similar transaction 30 days before or after the sale to avoid a wash sale on top of a wash sale. yo have to be careful because transactions entered into in the first 30 days of a new year would be taken into account in determining prior-year wash sales.
not making a valid 475(f) election means no gain or loss is recognized until the position is closed out.
with a valid 475(f) election there are no wash sales because at year-end the securities held are marked to market and any unrealized gain or loss is recognized in that year. the downside to 475(f) all gains and losses are ordinary income reported on form 4797.
Traders report their business expenses on Schedule C (Form 1040 or 1040-SR), Profit or Loss from Business (Sole Proprietorship). 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. See IRS Topic No. 703, Basis of Assets. Gains and losses from selling securities from being a trader aren't subject to self-employment tax.
The Mark-to-Market Election (optional, generally used to avoid the issue of wash sales)
Traders can choose to use the mark-to-market rules. If a trader doesn't make a valid mark-to-market election under section 475(f), then he or she must treat the gains and losses from sales of securities as capital gains and losses and report the sales on Schedule D (Form 1040 or 1040-SR), Capital Gains and Losses and on Form 8949, Sales and Other Dispositions of Capital Assets as appropriate. When reporting on Schedule D, both the limitations on capital losses and the wash sales rules continue to apply. However, if a trader makes a timely mark-to-market election, then he or she can treat the gains and losses from sales of securities as ordinary gains and losses (except for securities held for investment) that must be reported on Part II of Form 4797, Sales of Business Property. Neither the limitations on capital losses nor the wash sale rules apply to traders using the mark-to-market method of accounting.
A trader must make the mark-to-market election by the original due date (not including extensions) of the tax return for the year prior to the year for which the election becomes effective. You can make the election by attaching a statement either to your income tax return if filed without an extension or to a request for an extension 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 (Form 1040 or 1040-SR), Capital Gains and Losses PDF 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.
