Filing tax return as Trader Status and Mark to Market Election

Before enduring a flaming wrath, let me say that I've read up on the nuances of trader tax status, MTM elections, entity formations, etc... I've even spoken with a very knowledgeable trader tax expert about my options for filing TT status. He's recommended that I set up an SMLLC S Corp and go for it.

The rub is that he's got a $1000 incentive to suggest I go for it, and before I proceed I wanted to calibrate from any others on this forum who have elected trader tax status and fit into a similar bucket. In particular I'm wondering what the risk of an IRS inquiry & associated hassle would be, and whether that risk is justified by the potential savings. Here's my situation - anyone with a similar one, please let me know your point of view (& relevant IRS experiences)

* Part time trader (W2 income that is probably 4x my best case trading income)
* ~2500 trades per year (1250 round trips), $5M+ gross proceeds
* Holding periods of 3 days to 3 weeks
* Market neutral (so not benefiting from overall market appreciation, only speculation)
* California resident
* Tax savings of 2-4x the fees and costs of electing TT status

My concern is the part time trader part and the likelihood of getting challenged and having to deal with an IRS exam - otherwise I think it'd be a no-brainer.

Anyone faced a similar situation and how did you come out?
 
Quote from sf631:

Before enduring a flaming wrath, let me say that I've read up on the nuances of trader tax status, MTM elections, entity formations, etc... I've even spoken with a very knowledgeable trader tax expert about my options for filing TT status. He's recommended that I set up an SMLLC S Corp and go for it.

The rub is that he's got a $1000 incentive to suggest I go for it, and before I proceed I wanted to calibrate from any others on this forum who have elected trader tax status and fit into a similar bucket. In particular I'm wondering what the risk of an IRS inquiry & associated hassle would be, and whether that risk is justified by the potential savings. Here's my situation - anyone with a similar one, please let me know your point of view (& relevant IRS experiences)

* Part time trader (W2 income that is probably 4x my best case trading income)
* ~2500 trades per year (1250 round trips), $5M+ gross proceeds
* Holding periods of 3 days to 3 weeks
* Market neutral (so not benefiting from overall market appreciation, only speculation)
* California resident
* Tax savings of 2-4x the fees and costs of electing TT status

My concern is the part time trader part and the likelihood of getting challenged and having to deal with an IRS exam - otherwise I think it'd be a no-brainer.

Anyone faced a similar situation and how did you come out?
More...

Get a second professional opinion. Asking for anonymous advice from those of unknown capability does not make sense.
 
Quote from sf631:


My concern is the part time trader part and the likelihood of getting challenged and having to deal with an IRS exam - otherwise I think it'd be a no-brainer.
More...

Do you think you have passed the 2 tests as outlined in the IRS publication on trader status?

Judging from your activities you look like a clear-cut trader not an investor.

Part-time/full-time shouldn't be an issue because anybody who is taking a full salary (getting a W2 from a "day" job) can have a side businesses and can file Schedule C for them. What is more key is whether you treat your trading activities as a business or is it just a hobbie?
 
I formed a new s-corp for trading. Will start soon. How do I go about making the mark-to-market election? I couldn't find satisfactory answers for a new company.
 
I am hoping someone may provide an answer to this once and for all...

I traded 1256 contracts heavily throughout all of 2009 from a personal trading account using my SS# and my full name. I generated losses in excess of $3000.
In December 2009 I established an personal LLC and received a Federal EIN number.
My personal LLC was set up as "My Name + Trading, LLC" with me as the the Sole Member.
My goal was to officiate my business trading efforts for all of 2009, and to make the allowable internal M2M election during the first 75 days after establishing my new entity, so that I may recognize all losses on a K-1 to then pass through to my personal 1040 taxes.

Because I formed my personal LLC late in the trading year, none of my losses were generated from a direct LLC account using my EIN number with my broker... My losses were generated from my pre-entity personal trading account using my SS#. Therefore, the 1099-B form received from my broker only bears my full name and SS#. Since I am the only member of my personal LLC (bearing my SS#), this make me wonder if all of my pre-entity trading qualifies as activity done under my established personal LLC.... directed by myself, bearing my SS#.

My official question is this: Can I consider all of my pre-entity trading losses generated throughout 2009 as having been done as activity of my personal LLC established in December 2009?


Thanks in advance.
 
Not a tax expert/lawyer/CPA etc... but I think:

Only trades made thru the LLC would be part of the entity. Thus you could elect MTM within 70 days but that would only count towards the Dec-09 trades and onward.

You could choose to claim trader tax status on your 2009 return for 2009 (as an individual, not entity), but MTM elections needed to be made by April 15th 2009 for the 2009 year so you wouldn't get much benefit out of doing that - except for the deductible expenses.

Sorry. Get a 2nd opinion but I think you're SOL for this year. You'll be all set for next year though (hopefully with gains not losses)
 
Quote from blacknewt:

I am hoping someone may provide an answer to this once and for all...

I traded 1256 contracts heavily throughout all of 2009 from a personal trading account using my SS# and my full name. I generated losses in excess of $3000.
In December 2009 I established an personal LLC and received a Federal EIN number.
My personal LLC was set up as "My Name + Trading, LLC" with me as the the Sole Member.
My goal was to officiate my business trading efforts for all of 2009, and to make the allowable internal M2M election during the first 75 days after establishing my new entity, so that I may recognize all losses on a K-1 to then pass through to my personal 1040 taxes.

Because I formed my personal LLC late in the trading year, none of my losses were generated from a direct LLC account using my EIN number with my broker... My losses were generated from my pre-entity personal trading account using my SS#. Therefore, the 1099-B form received from my broker only bears my full name and SS#. Since I am the only member of my personal LLC (bearing my SS#), this make me wonder if all of my pre-entity trading qualifies as activity done under my established personal LLC.... directed by myself, bearing my SS#.

My official question is this: Can I consider all of my pre-entity trading losses generated throughout 2009 as having been done as activity of my personal LLC established in December 2009?


Thanks in advance.
More...
i think not.
 
Thanks for your swift replies...

I wish I understood the rules more clearly last year -- I wouldn't have wasted the money on forming the LLC. I was under the impression that in receiving a Fed EIN number and establishing an LLC name I could simply collect all trading activity under one title, but it seems not.

Now that I will have substantial carry forward loss to add to existing carry forward losses, my supply is growing quite large.

Are there any creative ways, outside of trading, to use up carry forward losses in excess of $3000 per year?

Can one consider any portion of their capital loss "research and experimentation" or perhaps even "education" and use this as an "expense"?

Thanks.
 
Hi, these conversations have been helpful generating ideas..

If I am an employee of a trading llc , are there conflicts if I start my own entity for tax purposes for my trading that is outside of the groups?

Thanks in advance..
 
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