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How do I report my trader activity with (or without) Section 475(f) election in TurboTax?

SOLVEDby TurboTax140Updated December 21, 2021

To properly report your business expenses, gains, and losses as a trader it’s highly recommended you use a CD or downloadable version of TurboTax because some entries will need to be entered directly in Forms Mode.

If you have not made a Section 475(f)  Market-to-Market (MTM) election, then your trades are reported on Schedule D and Form 8949, if you have elected MTM, then your trades are reported on Form 4797.

  1. Using your CD or downloaded version of TurboTax, go to the Federal Taxes tab.
  2. Under Business Items, select Start next to Business Income and Expenses (Sch C).
  3. On  Schedule C Business Income and Expenses, include all your business-related expenses.

Some examples for a trader may include:

  • Qualified home office expenses
  • Depreciable personal property (e.g., computer, printer)
  • Educational expenses
  • Publications, and
  • Business start-up costs

Note: Initially, home office expenses will be disallowed until an overall business gain has been determined.

  1. Using your CD or downloaded version of TurboTax, open or continue to your return.
  2. Go to the Investment Income section of your return and select Start next to Stocks, Mutual Funds, Bonds, Other.
  3. Select either Yes or No on the page Did you sell any investments in 2021?
  4. Enter the details from your Form 1099-B or choose to import from your bank or brokerage. (Note: TurboTax will automatically generate and fill out Schedule D when you report 1099-Bs and other capital asset sales.)
  5. To view your Schedule D go to Forms Mode by selecting the Form icon on the toolbar.
  6. To view your gain or loss, go to Line 16 of Schedule D.

Because Line 16 shows both trader and investor transactions, you will need to determine the gain/loss that belongs only to your trader activity in order to use it in the calculations for Home Office Deduction. Transactions as an investor (for example, selling a long-term holding) cannot be considered income associated with your business as a trader.

  1. Using your CD or downloaded version of TurboTax, open or continue to your return.
  2. Under the Business Items section select Start or Update beside Sale of Business Property.
  3. Select Sales of business or rental property that you haven’t already reported.
  4. Select Yes or No to question Do all of the following apply to the property you sold?
  5. Enter the details of the sale.
  6. On the page Tell Us About Your Sale, select the Type of sale (To report on Form 4797 in Section II, select Held one year or less).
  7. Enter the amount reported on Form 1099-B on the next input screen.
  8. To view Form 4797, go to Forms Mode by selecting the Form icon on the toolbar.

If you’ve only reported trader activity items on Form 4797, then your trader gain is the amount from Line 18b.  If you’ve included both trader and investor activities then you will need to separate your total trader gains in order to apply it towards your home office deductions.

For traders who claim a home office on their Schedule C, a manual adjustment must be made to show this business gain for the year. Otherwise, the home office deduction is disallowed. 

Use the following steps to make a manual adjustment:

  1. Using your CD or downloaded version of TurboTax, open or continue to your return.
  2. Go to Form 8829 in Forms Mode by selecting the Form icon on the toolbar.
  3. Go to Line 8 on the Calculation Smart Worksheet.
  4. Enter your gain amount (from Line 18b on Form 4797) on Line C2 of Form 8829.

Note: Home office expenses along with all other business expenses on Schedule C will be reported as an overall loss because trade income is not reported directly on Schedule C.  With an overall loss on Schedule C, no self-employment tax will be imposed.

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