Mark to Market for 2024

[gl2024confused]

Confusing information or maybe I am confused. 

Had a W2 for 2023 (and will probably have one for 2024, searching for job).

meanwhile, doing day trading and qualify for TTS and from information I have read, I need to elect Mark to Market under section 475(f).

Questions:

1. Now, since I am reporting taxes for 2023, should I still report as individual? Will this affect my MTM election?

2. How to actually elect it? IRS page says include a statement of your election, year and name of business? My understanding is that I will need to report it as Business in 2025 when I am filing tax returns for 2024.

3. I am keeping track of all my trades from Jan 2024 but I don’t think I need to include all of them under Schedule C and form 4794. Right?

4. Which edition of TurboTax do I need? I have out of state rental, foreign rental, trading (for 2023 as well), W2, spouse W2, dividends etc.

Don’t see anyone having confusion like me? What am I missing?

Please help ASAP as 4/15 is very near (don’t ask why I am late).

[KrisD15]

1. You say you qualify as a Trader to request the MTM election, so you should already be filing Schedule C. Making the MTM election does not make it a business, it just changes the way you report the business trades. 

2. Include the statement with your tax return (so all would need to be mailed) or you can file for extension by mail with the statement and then e-file the return. 

3. Again, as a Trader, you should already be using Schedule C.

4. As a Trader, especially if you elect MTM, you really need to use TurboTax Home and Business DESKTOP. You'll need to make some entries directly on the forms. 

HERE is a link to more information that might help. 

[gl2024confused]

Ty, from your response it sounds like I should use Schedule C for all my 2023 trades. Also, I have thousands of trades for whole of 2023, need to include print outs of all of them?

“Include the statement” what statement are we talking about? Is there a template for this to indicate 2024, Mark to Market election and name of business?

At the moment, I don’t have a LLC, or  SCORP or any business entity registered? What should I write in such a case? 

This is where I get stuck :(

[DawnC]

As a trader, you 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 you intend the election to become 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:

1. That you're making an election under section 475(f);
2. The first tax year for which the election is effective (that is, the tax year for which a timely election is being made); and
3. The trade or business for which you're making the election.

If you’re a new taxpayer that wasn’t required to file a tax return for the prior year, you may make the election by placing the above statement in your books and records no later than 2 months and 15 days after the first day of the year for which you intend the election to become effective. You must attach a copy of the statement to your tax return for that year.

Refer to the Instructions for Schedule D (Form 1040), Capital Gains and Losses and Revenue Procedure 99-17 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.

See Topic 429 - Mark to Market election

[gl2024confused]

Thanks but I am aware of those rules. What I am asking now is if there is an example of this “statement” somewhere that I can see? Is it a simple blank page where I write “making election of Mark to Market under section 475(f), 2024 and name of business”. Also, need example of name of business since I don’t have one at the moment?

Am I talking to a bot 🤖 lol?

[Mike9241]

Here is more info. 

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, 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:
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 (various tax court cases have allowed trader status with as few as 600 trades a year though pro's usually recommend 1,000)
You must carry on the activity with continuity and regularity.
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. 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 can 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 those 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 account).
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 Method. Publication 550 describes the procedures for making an election under the section called "Special Rules for Traders in Securities."
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 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 extension of time to file that return. Late revocations won't generally be allowed except in unusual and compelling circumstances.
A trader is not required to make the 475(f) election. 

there's a trade-off:

no election gains and losses are capital, the wash sale rule applies, and no mark-to-market. 

with a valid election gains and losses are ordinary, the wash sales rules don't apply, but unrealized gains and losses are recognized at year end and included in determining taxable income/loss for the year.  

if you timely file your 2023 return or extension with the election you can make the election effective for 2024

[sideways00]

Hi I’m hoping you can help with the following mark to market election. For starting a new LLC is says to add to your book of records in the first 2 months and 15 days. Is just typing out the statement and keeping a record of it suffice, or does it need to be submitted? Then is the original statement submitted next year at tax time? any help would be greatly appreciated thanks 

[RobertB4444]

With a new business you will just add the statement to your formation documents within two months and 15 days of formation.  It needs to be submitted with your initial tax return (or initial extension request).  

@sideways00 

[4ever1505]

Did you figure this out? If so, what do you have to do? I'm trying to change my status to MTM for this year and also struggling as well.

[fanfare]

First get into Forms mode (this means you're using the desktop program, not Online).

Then open Schedule C Give it a name (Trader)

Set Line 7 Accounting Method Other (MTM)   [[or as you wish]]

Click the upper Quickzoom button  Disposition Worksheet 

Give it a description ( "Trading outcome")

In Part 1 A. enter (as per IRS instructions) "Trader-see attached".

The red boxes for Property A will open.

Fill in the red boxes with your  tax year results.

For Type of property Choose H ( Ordinary ) [[or as you wish]]

Your 4797 p1 will be generated.

Open your form 4797 and complete Line 1 (one of the few fields that will take more than 10^7 dollars)

Open Form 1040  Click Print on the bottom of the screen.

The income appears on your Form 1040 Line 8 [[ Now Schedule 1 Line 4]]

Note: When the tax return is printed, Schedule C will not be included.

If you want Schedule C you'd have to complete some other lines there.

The attachment is the details of all your trades for the calendar year.

That means you'll have to file a paper return. [[This is so until Desktop TurboTax allows PDF attachments.]]

I have no idea how many MTM traders file with TurboTax and actually attach details, or make use of electronic media  which IRS does not talk about.

Other tax software allows attachments for Form 4797.

@4ever1505 

[4ever1505]

What version should I get? Deluxe? and Can I efile or need to be printed out?

Thanks,

[Mike9241]

there should be no reason you can't e-file.  every desktop has the same forms. the only difference is that higher versions offer more guidance

if you made a valid MTM election, your gain/loss is ordinary income reported on form 4797 line 10. 

these are the instructions from form 4797

Securities or Commodities Held by a Trader Who
Made a Mark-to-Market Election
Report on line 10 all gains and losses from sales and
dispositions of securities or commodities held in
connection with your trading business, including gains and
losses from marking to market securities and commodities
held at the end of the tax year (see
Traders Who Made a
Mark
to
Market Election, earlier). Attach to your tax return
a statement, using the same format as line 10, showing
the details of each transaction. Separately show and
identify securities or commodities held and marked to
market at the end of the year. On line 10, enter
“Trader—see attached” in column (a) and the totals from
the statement in columns (d), (f), and (g). Also, see the
instructions for line 1, earlier.

Now to be fair, when I worked for CPA firms (several) many years ago only a one-line entry was made. Details were never provided. the choice and risk, if you do the one=liner, is yours

[Mike9241]

the MTM under 475(f) is a choice not a requirement. the basic difference is without it your trading gains and losses are reported on schedule D and subject to the wash sale and net capital loss rules. With a proper election, since open positions are MTM at the end of the year, unrealized gains and loss are reported for that year. however rather than being capital gains and losses they are ordinary gains and losses reported on form 4797 line 10. With MTM there are no wash sales to deal with. 

if 2024 was your first year trading it's probably too late to make the MTM election since you had to positively affirm this within 2 1/2 months of your start of trading by placing a statement with your trading records.  you may also be too late to make the election for 2025 because if you started trading in 2024 then the election for 2025 had to be timely filed with your return or extension by 4/15/2025.

here's more

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, 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:
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.
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. 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).
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.
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. The rules and limitations on capital losses and the wash sales apply.
That you are making an election under section 475(f)(1) or (f)(2) of the Internal Revenue Code.

The election statement must have included the following information.

first tax year for which the election is effective.
The trade or business for which you are making the election.

If your method of accounting for is inconsistent with the mark-to-market election, you must change your method of accounting for securities under Revenue Proce-dure 2023-24 (or its successor), available at IRS.gov/irb/2023-28_IRB#REV-PROC-2023-24. Revenue Procedure 2023-24 requires you to file Form 3115, Application for Change in Accounting Method. Follow its instructions. Enter “64” on line 1a of the Form 3115.

Once you make the election, it will apply to the election year and all later tax years, unless you get permission from the IRS to revoke it. The effect of making the election is described under Mark-to-market election made (PUB 550), earlier.
If you want to revoke a prior mark-to-market election within the 5 taxable years ending with the year of change for the election, you must follow the non-automatic change procedures in Revenue Procedure 2015-13 and Revenue Procedure 2023-24, section 24.02(9).
For more information on this election, see Revenue Procedure 99-17, on page 52 of Internal Revenue Bulletin 1999-7 at IRS.gov/pub/irs-irbs/irb99-07.pd