Whether you have an LLC will probably not make the difference if the IRS should challenge your claim that you are a Trader in securities, whether that trading consists of options or futures contracts. What will matter, if you are challenged by the IRS to support your position, is whether your trading activities are consistent with those who are legitimately engaged in the business of trading in securities. Thus, the IRS will look to see whether your trading activities meet the following requirements:
- 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.
All of the above requirements are questions of fact. The IRS might question how it is that you can have a full-time job while at the same time carry on your securities trading activities with continuity and regularity. This is not to suggest it cannot be done, each person's situation must be judged on its merits.
You can prepare your return in TurboTax, but you will need to use the CD or download version of TurboTax because you will need to go into Forms mode to manually enter certain information on Form 4797, Sale of Business Property. This assumes you decide to make a mark-to-market election. If you decide not to make the MtM election, your trades will be reported on Form 8949, Sales and Other Dispositions of Capital Assets or Schedule D, whichever is applicable, and you can report your trades in this way using either the CD or download version or the online version of TurboTax, whichever you prefer. Note, that if you make the MtM election, you can prepare Form 4797 in TurboTax; however, because the IRS requires you to attach a statement to your return reflecting all of your trades, TurboTax cannot attach such statement to your return, and thus, you will need to paper mail your return to the IRS.
If you make the MtM election for tax year 2023, you will need to make a valid election under IRC section 475(f) and attach a statement to your 2022 tax return. No extensions are allowed with regard to the due date for the election made pursuant to 475(f). 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), 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.
Form 3115 is filed with your tax return for tax year 2023, assuming you have made the MtM election. If you decided against making the MtM election, then Form 3115 is not required.
@Srk84
[Edited 03/16/2023 | 9:17am PST]
@Srk84
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