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Mark-to-market downside
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Quote from nike:
"No, that is incorrect. Trading income is not considered earned income."
but when you elect to use mtm, then it might not be deemed as trading income but as earned income
From Schedule D Instructions (D-3):
http://www.irs.gov/pub/irs-pdf/i1040sd.pdf
Like an investor, a trader must report each sale of securities (taking into account commissions and any other costs of acquiring or disposing of the securities) on Schedule D or D-1 or on an attached statement containing all the same information for each sale in a similar format. However, if a trader previously made the mark-to-market election (see below), each transaction is reported in Part II of Form 4797 instead of Schedules D and D-1. Regardless of whether a trader reports his or her gains and losses on Schedules D and D-1 or Form 4797, the gain or loss from the disposition of securities is not taken into account when figuring net earnings from self-employment on Schedule SE. See the Instructions for Schedule SE for an exception that applies to section 1256 contracts.
From Schedule SE (SE-3):
http://www.irs.gov/pub/irs-pdf/i1040sse.pdf
Other Income and Losses Included in Net Earnings From Self-Employment
Gain or loss from section 1256 contracts or related property by an options or commodities dealer in the normal course of dealing in or trading section 1256 contracts
From the above, it is clear to me that securities traders (i.e., no 1256 contracts) do not receive earned income from their trading activities. It also appears that commodities "traders" (not dealers) also do not receive earned income from their trading activities.
I have always been confused as to why someone would declare MTM for commodities trading since 1256 contracts are always marked to market anyways, right? Is there a benefit to declaring MTM for 1256 contracts?
I believe (but am not completely sure) that you can declare MTM accounting for securities trading while not declaring MTM accounting for commodities trading. You would have to separate them out as different businesses. Anyone want to confirm this?
Thanks.