read this you may be out of luck for the 2020 tax year.
Deadline
The IRS chose an unusual deadline for this election. Most elections are due at the end of the year, when you file your return. This election has to be made by the due date — without extensions — for the previous year’s tax return. The last day to make the mark-to-market election for the year 2020 was July 15, 2020 (the unextended due date for 2019 tax returns).
The main reason for this is to prevent taxpayers from choosing the election at a time when they already know whether their trading activity will generate a profit or a loss. Many traders would wait until they have a year with significant trading losses, then file the election for that year to avoid the capital loss limitation. the election applies to all future years once you make it, but until then you get the benefit of capital gain treatment in profitable years without worrying about the capital loss limitation in a year with poor results.
Making the Election
Making the election is a two-step process (with the second step being in two parts). The first step is to file an election, on or before the unextended due date of your tax return for the year before the year to which the election applies. If you file your tax return by the regular due date, attach the election to your tax return. Thus it must be mailed in. so don't file late and do use a method where you get proof of delivery. If you file on extension, attach the election to your extension request.
Note: You may read elsewhere (as I have) that this election may be filed by itself. The IRS clearly states that the election must be attached to the return or the extension request.
Note: If you filed early you can still make the election if you act by the due date of your return. File an amended return with the election attached.
Here’s what an election would look like, assuming it applies beginning in the year 2021 and that it is filed with the original return or with an amended return filed by the unextended due date:
John Smith
SSN 123-45-6789
Attachment to 2020 Form 1040. I hereby elect to use the mark-to-market method of accounting under section 475(f) of the Internal Revenue Code for my trade or business of trading securities. The first year for which the election is effective is the taxable year beginning January 1, 2021. signed: ________
John Smith |
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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 2019-43
https://www.irs.gov/pub/irs-drop/rp-19-43.pdf 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 PDF. Publication 550 https://www.irs.gov/pub/irs-pdf/p550.pdf
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 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.
