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Are You a Regular Investor or a Tax-Favored Securities Trader?

Written by Coach Janelle CPA on March 29, 2023

As we navigate the recent volatility in the stock market, you may want to think about the possible favorable federal income tax treatment the tax code gives to a securities trader.

Suppose you can qualify as a securities trader for federal income tax purposes. In that case, you deduct your trading-related expenses on Schedule C of Form 1040 and make the taxpayer-friendly mark-to-market election, which is not available to garden-variety investors.

The mark-to-market election has two important federal income tax advantages:

        1. Exemption from the capital loss deduction limitation
        2. Exemption from the wash sale rule

But there is a price to pay for these tax advantages. As a trader who has made the mark-to-market election, you must pretend to sell your entire trading portfolio at market on the last trading day of the year, which may have little or no tax impact if you have little or nothing in your trading portfolio at year-end.

Your trading activities must constitute a business for you to qualify as a securities trader, and you must meet both of the following requirements:

         1. Your trading must be frequent and substantial.
         2. You must seek to profit from short-term market swings rather than longer-term strategies.

If you are a calendar-year taxpayer, the deadline to make the mark-to-market election for your 2023 tax year is April 18, 2023 (that’s right around the corner). You make the election by including a statement with your 2022 Form 1040 filed by that date or with a Form 4868 extension request for your 2022 return filed by that date.
 
Looking to get your taxes in order and save money in the process? Look no further than Coach Janelle CPA's Tax Strategy Planning Services! With Coach Janelle's expert guidance and personalized approach, you can optimize your tax strategy to minimize your tax liability and keep more of your hard-earned money in your pocket. Don't wait until tax season to start planning – contact Coach Janelle CPA today and take control of your finances! Book a discovery call today!

About Coach Janelle CPA

My passion is to help 6 & 7- figure+ earners see their financial possibilities through financial literacy and strategy. 

I want to help you save on taxes so you can keep more of your money to live the life you dream of and have worked for NOW, and build wealth and equity for the next generation.

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