I am trying to trade more actively in day trading and swing trading. But I am concerned about the tax consequences. How hard is it to get a mark to market tax status? It seems based on my current status that it would be near impossible to make it because I will have losses(due to stop losses) and I will have gains. So If I trade and win $150, and then I trade and lose $100, basically I have made nothing(have to pay taxes on the $150). So it feels like I would need to have 3 wins to every 1 loss which seems unlikely based on some winning %'s I have seen. Im not looking for tax advice but curious as to how others make it work. Thanks for our help in advance.
Trying to Trade more Actively but could use some guidance
- Thread starter Softgiant
- Start date
thanks for the response pspr, but dont I have a max of 3k in losses each year? I admit I am confused, but dont want to be suprised at tax day. It is enitirely possible I could make 50K, and lose 50K. so wouldnt my tax liability be a % of 47K(50K gains-3K yearly allowed losses by irs) while my net is still $0?
$3K is the loss carry forward (net gains and losses) max to the following tax year.
Do some research or ask a tax advisor.
Do some research or ask a tax advisor.
I think where I am confused is what the tax is calculated on. Capital gains taxes are based on either:
A. all gains
B."net" gains from all gains and losses throughout the year.
I believe it is B. Am I correct now? Sorry for the "newbie" type nature but I have a healthy fear of the IRS and want to make sure I am doing it correctly.
A. all gains
B."net" gains from all gains and losses throughout the year.
I believe it is B. Am I correct now? Sorry for the "newbie" type nature but I have a healthy fear of the IRS and want to make sure I am doing it correctly.
It does sound like you are a little confused.
First of all, "mark to market" is an accounting method. What you were thinking of is whether you can report your trading gains with "trader status". IRS sees the distinction between an investor and a trader. You need to have 2 tests. I have made a couple of posts on this already and posted some links for further readings. Google 'site:elitetrader.com bolimomo "trader status" tests'
http://www.google.com/search?hl=en&...er+status"+tests+&aq=f&aqi=&aql=&oq=&gs_rfai=
If you are an investor, you are bound by the wash sales rule. If you are a trader, you are not. Also... trading expenses are reported in Schedule A (2% floor) versus Schedule C (no 2% floor).
Consult your accountant.
Any any rate, if you gained $50k, and lost $50k (realized) in the same tax year, your net gain is $0. You don't have any capital gain to be taxed. If you gained $0, and lost $50k, then you take your capital loss of $3k and carry the rest $47k to future years. If next year you gain $50k and lose $0, then next year you have a total capital gain of $3000 (= $50000 - $47000 carry-over) to pay taxes on.
And this is just my opinion:
I think people should not take tax consequences as a factor to trade. You are thinking like an investor. Investors would consider whether to liquidate something this year or next year based on tax consideration. If you want to be a trader, you make money based on short term price fluctuations. Buy and sell because the market conditions are in your favor. Not because you want to save on long term capital gain.