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I am self-employed in USA. I am available during the stock trading time. I am thinking of starting day trading after a few months of preparation. I may begin with scalping. I will keep my current working-from-home contract job for my regular income. I also have some long-term stock investments.

Based on my situation, should I elect the mark-to-market for my day-trade brokerage account for 2023?

I will keep my new day-trade brokerage account separate from all other accounts. The new changes will not affect my existing long-term investment tax status. Is it correct?

At the time of the 2023 tax return, I only need to add the new part of day-trade tax activities. There shouldn't have any changes for other income tax returns. Is my guess right?

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Mark-to-market (MTM) accounting is an option available to certain traders, including day traders, that allows them to report their trading gains and losses on their tax return as if they were business income, rather than capital gains and losses. This can be beneficial for taxpayers who expect to have significant trading income and losses, as it allows them to offset other income and potentially lower their overall tax liability.

It's important to note that MTM accounting also requires traders to keep detailed records of their trades and to file additional forms with their tax return. Additionally, electing MTM can impact the traders’ eligibility for certain deductions, such as the home office deduction.

As you mention, keeping your day-trade brokerage account separate from your other accounts, and not making any changes to your existing long-term investment tax status, is a good idea. However, it is advisable to consult with a tax professional to determine whether MTM accounting is the best option for you given your specific circumstances, and how it would affect your tax return.

As for your question about only adding the new day-trade tax activities on your 2023 tax return, it is correct that your day-trade activities will be reported separately from your other income. However, you will need to include the income and losses from your day-trade activities on your 2023 tax return, whether you choose to use MTM or not.

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Even with capital accounting, losses can always be set against gains. So the IRS probably doesn't care if mark-to-market accounting is chosen. But if the loses were extremely more than the gains then that situation would be something to look at.

If the Schedule C deductions were extremely large then that situation would be something to look at.

Basically for trader-status, a large number of trades per-day are needed and a schedule of hours of work per-day is needed. Now mark-to-market accounting doesn't consider wash sales and that's the main point for a large number of back and forth trades.

Note that the Schedule C trader-status sends the mark-to-market trading to a Form 4797. And the Form 4797 requires a listing of all the trades.

But what is day-trading ? Market-makers buy at the Bid and sell at the Ask. There's no way to compete with that situation minute-by-minute. Day-trading should be more like daily swing-trading.

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