If you qualify as a trader, you have two ways to report your income:
- If you have not made a Section 475(f) Mark-to-Market (MTM) election, then your trades are reported on Schedule D and Form 8949.
- If you have elected a Section 475(f) Mark-to-Market (MTM) election, then your trades are reported on Form 4797.
Without the election, gains and losses are recognized when the security is sold. They are treated and taxed as capital gains and losses and are subject to capital gains tax rates, as well as the limitation of losses and the wash sale rules.
With the election, gains and losses are based on the value of your holdings at year-end. It's treated and taxed as ordinary income. The limit on losses and the wash sale rules don't apply.
Regardless of which you choose, the IRS recognizes you as a business. Therefore you report expenses on Schedule C. Commissions and fees paid to acquire the security aren't an expense, but are used to calculate the gain or loss of that security.
The profit or loss stays on the form appropriate to the method you used (Schedule D & Form 8949 or Form 4794) and doesn't get carried to Schedule C.
How to enter your info in TurboTax
If you plan to claim a home office deduction, you’ll need to use TurboTax Home and Business Desktop.
Note: If your customer’s TurboTax navigation looks different than what’s described here, learn more.
First: Enter Schedule C expenses
- Open your return and select Federal Taxes.
- Under Business Items, select Start next to Business Income and Expenses (Sch C).
- Continue through the questions to add or select your business profile.
- If asked Does this business receive income from specified services?, select Yes.
- Scroll down to Business Expenses and enter your ordinary and necessary business-related expenses.
- Deductions will be disallowed until an overall business gain has been determined.
Some examples of expenses for a trader may include:
- Qualified home office expenses
- Depreciable personal property (e.g., computer, printer)
- Educational expenses
- Publications
- Business startup costs
Second if no MTM election: Enter gains/losses on Schedule D
- Go to the Investment Income section of your Personal return and select Start next to Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B).
- Select Yes to Did you have investment income in 2023?
- Enter the details from your Form 1099-B or choose to import from your bank or brokerage.
- Enter any necessary adjustments and TurboTax will automatically generate Schedule D.
- To view your Schedule D, select Forms. Your gain/loss is on Line 16.
Note: Since Schedule D Line 16 shows both trader and investor transactions, you may need to calculate the gain that belongs only to you for future use.
Second if MTM election: Enter sale of business property
- Under the Business section, select Start or Update next to Sale of Business Property.
- On the Any Other Property Sales? screen, select Sales of business or rental property that you haven’t already reported and Continue.
- On the Sales of Business or Rental Propertyscreen, select No to the question Do all of the following apply to the property you sold?.
- Answer Yes to Do any of the following descriptions apply to the items you sold?.
- On the Tell Us About Your Sale screen, select Held one year or less for the Type of Sale, then select Continue.
- Enter the trades/sales with adjustments and select Continue and Done.
- Enter total gross proceeds from your 1099-B and select Done.
- To view your Form 4797, select Forms.
Note: If you’ve only reported trader activity items on Form 4797, then your trader gain is the amount from Line 18b.
Third: Claim home office expenses via a manual adjustment
If you want to claim a home office deduction on your Schedule C, you must make a manual adjustment to show a business gain for the year.
- Select Forms and go to Form 8829.
- On Form 8829, Part II, Line 8 Calculation Smart Worksheet line C2 Adjustments to calculated gain, enter the income from trading activities, either from Line 18b on Form 4797 or the calculation you made from Schedule D.
