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If you did make the Mark-to-Market election, did you also file [B]Form 3115[/B]?
I was looking into buying a year's subscription of Trade Ideas Pro. However, after reviewing the IRS rules, I realized if I did buy the subscription, which is fairly pricey, I might be required to make the Mark-to-Market election. To qualify for the IRS election, the IRS requires that:
Your activity must be substantial; and
You must carry on the activity with continuity and regularity
I read that the IRS requires the number of trades per year must be at least 1,000 to 3,000 trades per year. This means, if I bought Trade Ideas Pro, I would be forced to make 1,000 to 3,000 trades per year.
My understanding is, if you make the Mark-to-Market election, you cannot claim the lower long-term capital gain rate for investments of over a year even if they are in a different brokerage account.
Can you help answer these questions from other members on NexusFi?
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,057 since Dec 2013
Thanks Given: 4,409
Thanks Received: 10,225
I believe that in order to qualify for the mark to market election you must qualify as a business trader. That means you need to show the IRS that trading is a business and not an investment. Number of trades is one thing they look at, but also the number of days you trade, and the amount of time you spend in the business. I understand that if you have a full time job, while it's not impossible to get trader status, it does get considerably more difficult.
Trader status by itself gives many advantages including deduction of trading expenses, home office expense, pension plans etc etc. The big thing Mark-to-Market gives you, is the ability to take losses as ordinary losses, which are not subject to the capital loss limitation.
I do have trader status. I do not make the mark to market election.
I did some more research into the number of trades required to qualify for mark-to-market. This CPA created video tells us you only need to make 60 trades per month or 720 total trades per year and you "count the buy and sell, or open and close, separately." This means you only need to make 360 round trips per year total or 1.44 round trips per day if you have 250 (50 weeks x 5 days per week) trading days per year.
Regardless of how you calculate the number of days you trade, as long you are trading in a consistent manner, the total number of round trips should be 360 round trips to quality for mark-to-market. This number is much lower than I thought only 2 weeks ago.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,057 since Dec 2013
Thanks Given: 4,409
Thanks Received: 10,225
I'm actually a Green Trader Tax client, or Green Neuschwander & Manning client as I believe they are now known, and have been for 7+ years. In summary they are excellent, and really really know their stuff when it comes to trading related issues. The founder is Robert Green who is based in the North East. If you need any consultations regarding entity setups etc they will probably be with him. The partner in charge of my account (Neuschwander) and the accountant that does the majority of the work are both in Alabama. They have an online portal for uploading documents, and are extremely responsive to emails. I also think they are competatively priced, but don't have a lot of experience with other accountants. I've been very happy with the limited dealings I have had with Robert, the semi-regular dealings I have with Neuschcwander and the constant dealings I have with my accountant, who has remained the same for all 7 years. Robert Green is THE go to guy on trading accounting and writes regularly for most of the trading publications and for Forbes. They have a huge amount of info on their website including the following...
Green’s Golden Rules For Qualification For TTS
Our golden rules* for qualification are based on years of experience. The trader has:
Substantial volume – at least four total trades per day, 15 per week, 60 per month (Poppe court)
Substantial proceeds
Regular
Frequent – a trade execution on 75% of available trading days
Continuous
Time
Daily market movements – average holding period under 31 days (Endicott court)
Intention to run a business and to make “a” living
Business setup
Materiality
They also have, or at least had, some blogs detailing the IRS court cases on this matter, but I didn't wanna do all the work for you. Feel free to PM me if you have specific questions.
Thanks for the link. I will look into it and see if there are any other pertinent blog entries. I'm pretty sure the Green's 2018 Trader Tax Guide PDF will cover the information I need.