Futures, stocks, LLC, M2M, and trader status

[JT47319]

What is the ideal tax strategy to employ for a trader in both stocks and futures? M2M accounting can be advantageous in certain situations, like a net loss in stocks to count against ordinary income, but you lose the tax advantage of futures. Also, I understand that operating the business through an entity like an LLC is generally more advantageous than not (just some paperwork and various fees). Ideally, what approach should we as semi-pro traders take?

Conceivably, we’d have four scenarios.
1) Stock/futures = gain/gain
2) Stock/futures = loss/gain
3) Stock/futures = gain/loss
4) Stock/futures = loss/loss

 

[crackedback]

You can be MTM for stocks and not for futures. Be specific in your correspondence regarding the trading vehicles and accounts you are using.

You may have long term holding which you don't want to be subject to MTM treatment. You must designate the securities the day they are purchased as long term holdings. It's easier to maintain another account for long term holdings.

Later,

Cracked

 

[JT47319]

As I understand it, for a newly formed entity like an LLC, you can internally elect M2M. You don't actually have to file, right? So in this case, one would state in ones Articles that the business is making M2M accounting for stocks and cash accounting for futures?

 

[DisciplinedHedg]

Quote from JT47319:

As I understand it, for a newly formed entity like an LLC, you can internally elect M2M. You don't actually have to file, right? So in this case, one would state in ones Articles that the business is making M2M accounting for stocks and cash accounting for futures?

Yes, an LLC when formed that year is "exempt" from the April 15 deadline. You just elect it in the "books."

Just be aware of the advantages/disadvantages of MtM for both stocks and futures. And that it is quite a hassle, if not very difficult, to change your election.