Trader Tax Status and 1256 Contracts

[sam992116]

I am thinking to file my taxes as Trader next year.

I will have about 1500 Trades about 40% of my Trades are 1256 Contracts (Futures, Futures Options and Equity Index Options).

When you file taxes your 1099 trades goes in detail on Sch D. You import this information into TT. But 1256 are reported and composite number on Form 6781 and from there information flow into Sch D with 60/40 split as long and short term gains.

TTS needs, Volume, Frequency, Holding period and money at risk. I have few questions

Q1: I am assuming if you buy and sell a Options Spread, technically you have made 4 trades. Is this in general acceptable assumption?

Most of my 1256 trades have 1 day holding period. So they helps me in Volume of trades, average holding period, money at risk as Index options have very HIGH notional value so one can argue there is substantial money at risk.

Q2: 1256 favors me to file my taxes as Trader but does IRS has 1256 detail information from brokerages or can they get it directly or will I get notification from IRS?

[tagteam]

The IRS gets the information that is reported on your 1099-B (lines 8-10). You should not get any notification under typical circumstances.

[Mike9241]

1256 contracts are not subject to the IRC 475(f) election tax reporting as ordinary income/loss. 

IRC 475(c)(2) last sentence

[sam992116]

Thanks

Buy and Sell of an Options Spread, technically you have made 4 trades as each leg has its own profit loss? Is this in general acceptable assumption?

[tagteam · Accepted solution]

It takes two to create a spread, so yes.

[sam992116]

thanks

[charliel34]

Very helpful to learn above that form 6781 is available in the online version of TT.  However I just bought and downloaded Turbo Tax desktop.  How can I switch?

[CatinaT1]

Please call TurboTax Customer service.  Here is a link:  Turbo Tax Customer Service 

[ahujat]

But IRC 475(c)(2) refers to 'Dealer in securities' and not 'Trader in securities'. Does that matter?

[RobertB4444]

No.

@ahujat