a day trader does not have to make the M-T-M election. if they don't then they are subject to wash sale rules but get capital gain/loss treatment (it won't help if it's all short-term or a loss for the year). Making the M-T-M the net M-T-M income gets entered in Part II of from 4797 and is taxed as ordinary income/loss but no wash sales. if you are not making the M-T-M election nothing gets filed with your 2023 return.
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info for traders
Traders
Special 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. 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 ($s in the account is irrelevant, if audited the IRS will look at the number of trades you did for the year. Most pros recommend over 1,000 but in some court cases they have allowed as few as 600-700 because the taxpayer could show other factors)
You must carry on the activity with continuity and regularity. (you don't have to trade every day but trading for only a couple e of days a week could be an issue if audited)
The following facts and circumstances should be considered in determining if your activity is a securities trading business:
Typical holding periods for securities bought and sold;
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.
If the nature of your trading activities doesn't qualify as a business, you're considered an investor and not a trader. PERIOD. A taxpayer may be a trader in some securities and may hold other securities for investment (best to hold them in a separate account - personal opinion). 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.
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 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, but 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 Schedule D/ Form 8949 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, 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 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 timely filed income tax return if filed without an extension or with a timely filed 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 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 Form 3115 - Application for Change in Accounting Methods) (a duplicate copy must be filed with the National Office see page 2 of the 3115 instructions) https://www.irs.gov/pub/irs-pdf/i3115.pdf. Publication 550 describes the procedures for making an election under the section called "Special Rules for Traders in Securities."
If you make a valid election under section 475(f), the only way to stop using it 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 an extension of time to file that return. Late revocations won't generally be allowed except in unusual and compelling circumstances.
