No. Capital Gains are income, not expense. If you meet all the qualifications below and you timely made the mark-to-market election, you can include gains on Form 4797 and expenses on Schedule C.
TradersSpecial rules apply if you're a trader in securities, in the business of buying and selling securities for your own account. The law considers this to be a business, even though a trader doesn't maintain an inventory and doesn't have customers. To be engaged in business as a trader in securities, you must meet all of the following conditions:
The following facts and circumstances should be considered in determining if your activity is a securities trading business:
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 Mark-to-Market ElectionTraders can choose to use the mark-to-market rules, investors can't. 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 Form 1040, Schedule D.pdf, Capital Gains and Losses and on Form 8949.pdf, 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 - see above) that must be reported on Part II of Form 4797.pdf, 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:
Traders report their business expenses on Form 1040, Schedule C.pdf, Profit or Loss From Business (Sole Proprietorship). The Schedule A limitations on investment interest expense, which apply to investors, don't apply to interest paid or incurred in a trading business. 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 Topic No. 703, Basis of Assets. Gains and losses from selling securities from being a trader aren't subject to self-employment tax.
No. Capital Gains are income, not expense. If you meet all the qualifications below and you timely made the mark-to-market election, you can include gains on Form 4797 and expenses on Schedule C.
TradersSpecial rules apply if you're a trader in securities, in the business of buying and selling securities for your own account. The law considers this to be a business, even though a trader doesn't maintain an inventory and doesn't have customers. To be engaged in business as a trader in securities, you must meet all of the following conditions:
The following facts and circumstances should be considered in determining if your activity is a securities trading business:
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 Mark-to-Market ElectionTraders can choose to use the mark-to-market rules, investors can't. 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 Form 1040, Schedule D.pdf, Capital Gains and Losses and on Form 8949.pdf, 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 - see above) that must be reported on Part II of Form 4797.pdf, 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:
Traders report their business expenses on Form 1040, Schedule C.pdf, Profit or Loss From Business (Sole Proprietorship). The Schedule A limitations on investment interest expense, which apply to investors, don't apply to interest paid or incurred in a trading business. 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 Topic No. 703, Basis of Assets. Gains and losses from selling securities from being a trader aren't subject to self-employment tax.
Well the answer ignored line 7 of schedule c "gross income" and said schedule c was only for expenses.i made money as an IRS recognized Trader and want to enter my gross gain on line 7 of schedule c and have the trading expenses offset some of that but TurboTax won't allow or can't explain how to do that. TurboTax only allows entering gross gain on schedule d.
You income has to be entered on Form 4797 per IRS rules.
I don't think so - Schedule C (Profit and Loss From Business) Line 1 specifically states "Gross Sales" , Line 4 "Cost of Good", and Line 5 is net of those two. I made a profit , and I have entewres my expenses on the form C but I cannot get TurboTax to enter my profit on Schedule C , only Schedule D. So , doubled.
I understand that you want to do this but it is not what the IRS wants you to do. Enter zero for income on Schedule C and enter your stock trades on Form 4797 as the IRS prescribes. Enter your expenses on Sch C.
"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 - see above) that must be reported on Part II of Form 4797.pdf, Sales of Business Property."
<a rel="nofollow" target="_blank" href="https://www.irs.gov/taxtopics/tc429.html">https://www.irs.gov/taxtopics/tc429.html</a>
ok, but what do I put on Schedule D? I used TurboTax to transfer my 1099 from Fidelity and it ended up as Schedule D with the gain....how do I "negate" the Schedule D amount and have the 4797 amount obtain (by the way , you've been most helpful and patient )
It's my pleasure. This is not an easy topic. You would put any trades that were not done as a trader. That is put any stock you hold for investment purposes. You will need to delete anything that is not an investment and enter it manually on 4797. You could break it down into Long term covered, short term covered, long term non covered, short term non covered, etc.. And send the actual individual transactions (1099B) into IRS using Form 8453.
Well , all the trades were short term (some buy/sell over hours, some longer but all "short term" in IRS definition. None were for investment , all were as trader) . So it is easy - no separation necessary. I think I got it now - once again , thanks for your taking the time - it is difficult . I'm done for now thanks to your helping me ...
This answer did not help me because I did not make the mark to market election before the deadline for the tax year. Turbotax does not include my capital gains as income and as a result, I am not eligible for certain deductions such as home office, self employed 401k and self employed health insurance. How do I get TurboTax to recognize my capital gains as income, assuming I did not make the mark to market election?
Hi Coleen,
I am also a trader in securities. I qualify based on all the criteria, and I have made the mark to market election timely. I entered my gains on form 4979, and entered my business expenses (trading programs and other computer related expenses) on schedule C, but I don't know where to enter my home office expense (i.e., rent and utilities portion allocated to the office)? Since I entered the trading income on 4979 and the business expenses on schedule C, I have a net loss on Schedule C, and when that's the case, home office expenses become not deductible. Is there any other place I can enter home office expense? Thanks so much, and if you can reply timely, I would be ever so grateful. Thank you, Sam.
If you did not make the election timely then there is NO WHERE for you to enter the expenses you want to deduct ... that section of the Sch A has been removed. If you wish to be considered a trader you must make the election before you can use the Sch C & form 4797.
You are caught in a catch 22 situation ... since the income goes on the form 4797 thus the Sch C has no profit and without profit you cannot take office in home expenses.
This is a separate question, but I would appreciate your thoughts if you do know the answer. I maintain two residences, each has an office. Can I claim two home office deductions for the same business? I spend about 60% of my time at one, 40% at the other?
Hi,
As a trader with Trader Tax Status, I still can't get Turbo Tax to accept my Home Office Expense (as gains are in Sch D and expenses are on Sch C). Turbo Tax states due to no income in Sch C, i can't deduct Home Office?
Am i doing something wrong? Or do i just calculate Home Office Exp and include separately as a Misc Exp in Sch C?
thanks.
Hi Colleen,
Thanks for your help.
To confirm:
a. Regardless of 475 election, annual trading gains/losses are reported on Sch D and expenses on Sch C. The main benefit with 475 election is that is helps remove $3k cap loss limitation and Wash Sale rule. The election of form 475 should have no impact on deducting business expenses, correct?
b. When preparing Sch C (as the gains from annual trading sales are in Sch D), Sch C shows no income. Therefore, I can't deduct Home Office Expense.
Any way to get around this and would you know why this happens? Should I calculate Home Office Expense and include as Misc Expense in Sch C?
Thanks.
Hi, Did you found out how to report home office expenses when there is no income on Schedule C. I know the rules of reporting income on 4797 line 10 and expenses on Schedule C when a mark to market election is timely made. I have the same question as you had. I cant deduct home office expenses because there is no income on Schedule C. nobody answered that question that day.
your choice
A)
set up a schedule C to link the HO to. then type 8829 into the search box. there should then appear a list of 3 items click on the first and link the schedule C.
or B)
type 8829 and then clicking on the first item in the list. you'll be asked to set up a schedule C.
It seems that no one really answered the question. If a day trader, shows expenses on Sch C and income on either Sch D or 4797 (if making the mark to market election, then business use of home will never be allowed unless there is a way to move those expenses directly to the Sch C instead of using the 8829.
Yes, you can accomplish this, and below is a link to some very valuable information for your unique self-employed status and related forms of income/expense. This is no easy task as it is relatively new and hence why I am sending you to the Journal of Accountancy link as the information is up to date as of late Fall, 2020.
HI, Thanks for the link. I've already read the article. If you, as a trader, make the mark-to-market election, you claim income from trades on the 4797, there is no wash sale allowance, there are deemed sales as of 12/31 of ea. yr and expenses on the Sch C. If no mark-to-market election, then trades on Sch D, limited to $3000 total loss/yr and expenses on Sch C. We're still back to the same question. No Sch C income.