Day Trading taxes

[fanfare]

If you elected MTM, you have to file a paper return, with all your transactions detailed as an attachment to Form 4797, and no Schedule D.

TurboTax won't support a PDF attachment to Form 4797 during  e-File.

You might get away with sending the details on paper copy to the IRS office in Austin, TX which is the place to mail transaction detail after you e-File.

Either way, you are mailing in the transaction details on paper.

[Buybuy]

Yea Fanfare, that's what I was afraid of and what I got from the older blogs.

I was just thinking there would be a smart way to get those individual transactions in 8949 and then auto import into 4797. Since I have no wash trades (I mostly close transactions on same day or day after), those details to be sent in 4797 are identical to what TurboTax will fill into 8949 from each of 1099Bs. In that case, it would be just eFile and not the paper file...

[fanfare]

Form 8949, with Box C checked, for all trades, should be acceptable,

[Buybuy]

1. Hmmm, but all the trades are reported in 1099B to IRS. So shouldn't it be option A on 8949?

2. If I try to import 1099Bs from the four brokers into TurboTax, how do I make sure it will not auto-generate Schedule D? I can manually add 4797 with the total, no problem. But how to make sure Schedule D is not part of the filing via TurboTax software?

3. Would a fully filled 8949 be a substitute to all transactions in 4797 when they are identical?

[RobertB4444]

@Buybuy  You're using an 8949 when you shouldn't.  I understand the desire to do so but you should attach the broker statements showing every trade.  If you've imported them into your computer you can generate spreadsheet versions of the transactions.  In the case that you are stating you are trying to find workarounds for using the statements the way the IRS has specifically stated that MTM transactions need to be entered.

If you import your 1099-Bs into TurboTax it will generate a schedule D automatically.  There is no workaround for this.  Your individual trades aren't reported in your tax return if you have elected MTM status.  Only the totals on part II of form 4797.  The IRS is not going to accept a substitute for the 4797 in order to process your return.  And if you send the IRS a bunch of form 8949s - which are not used by MTM traders - you're just going to get your return rejected because you confused someone.

[fanfare]

"the way the IRS has specifically stated that MTM transactions need to be entered."

where exactly is "the way" you refer to specifically stated?

If you mean on consolidated 1099-B, IRS doesn't mention 1099-B.

all it says is, "supply details".

[bsp2020]

I want to declare as a trader to take advantage of trader tax status but do not want to elect mark to market. Is there an easy way to do this in Turbo Tax? I have Turbo Tax Premier.

[JohnB5677]

It would not be to your advantage to not take the mark to market option.  

Traders 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. 

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).  Neither the limitations on capital losses nor the wash sale rules apply to traders using the mark-to-market method of accounting.

IRS Topic No. 429 Traders in Securities

[dadick83]

Hi.  Similar question to this thread.  After discovering I will be losing $12k in wash sale issues for 2021, I wish to change to a schedule C and mark to market for 2022.  I am clear about the MTM statement, but I see no financial benefit for doing this in 2021.  Should I start the "business" effective Jan 1, 22 and just take the losses as an "investor" in 2021?  If so, how would I signal the election for the upcoming business?  Could I start the "business" 12/31/21 to get the Schedule C and have no income or losses for 2021?  How would be best to do this?  Thanks.

[ColeenD3]

There are two aspects to this. You can be a trader without the Mark to Market election. You have to still meet all the qualifications to be treated as a business to claim Schedule C expenses. You will have no SE income. Your gains and losses are still entered on Schedule D. 

To be engaged in business as a trader in securities, you must meet all of the following conditions:

• 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.

If you choose to take the Mark to Market election, you will enter your gains and losses on Form 4797. Your losses are not restricted. 

In either case, investments you hold long-term are as an investor, not a trader.

[dadick83]

Thank you for the response.  I am aware of the qualifications and restrictions and qualify, I just haven't yet done it, so 2022 will be the first year it can benefit me.  My question is about 2021 tax year, which was missed in this reply.  I am assuming that making the MTM would require the the schedule C to be filed this year.  Since I've already prepared most of my taxes with the disallowed wash sales on my individual taxes, I see no benefit to reworking all that for THIS year, since I wouldn't realize any advantage.  My intent is to not "start" the business until 12/31/21, claim MTM for that, but I would have 0 profit/loss with no trades.  Handle it like a normal business for 2022.  Are there any problems that anybody sees with doing this?

[ColeenD3]

Yes, you can start the business in 2022. 

[ebot]

I've read you can terminate mark-to-market status in following years, but I believe you may have to wait a few years to do so, and if you ever want to declare MTM again you'd have to use an LLC or S-corp entity to do so.  Include "green trader tax" in your search and you'll find the details.

[GeorgeM777]

You can revoke a mark-to-market accounting provided you timely do so.  Regarding revoking mark-to-market accounting, the IRS provides the following:

• 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 2019-43, 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.

Here is a link to the IRS webpage from which the above information was obtained.

Topic No. 429 Traders in Securities

@ebot

[Srk84]

I'm in same situation and need help.  I started doing active day trading (Jan 2023) that meets irs tts status. But I also have full time job, and no llc. The silver line is I trade only in 1 account for options,  1 for 1256 contracts. So I still have time

By end of the year I plan to open llc and separate the trading business completely 

Should I just file with turbo tax and print it and attach a statement for specific account that I need MTM election. When should I file form 3115.  For year 2024 (2023 returns) I'll find cpa that can do all.

 I will truly appreciate if you can help me with process and format of the election