Trader Tax Services

Trader tax status is a facts-and-circumstances business determination, not an election you file. It generally requires frequent, substantial, and continuous trading aimed at short-term profit, not long-term investing. It is not decided by a single share count or dollar threshold. We evaluate your trading pattern against the case law and IRS guidance and document the position so it holds up, because trader tax status is what unlocks business expense deductions and the ability to elect mark-to-market.

It depends on your book. The election makes your trading gains and losses ordinary, which removes the wash-sale rule and the $3,000 capital-loss limit and lets losses offset other income without the $3,000 cap, subject only to the excess business loss limitation in a very large-loss year. In exchange you give up long-term capital gains rates on anything it covers, and it is effectively locked for five years. It is a strong fit for high-volume traders carrying wash-sale disallowances or trapped losses, and a poor fit for anyone relying on long-term rates or 60/40 index contracts. We model both outcomes before you decide.

An existing taxpayer must make the election by the unextended due date of the prior-year return, which is April 15, with no extensions, and then file Form 3115 to change accounting methods. If you missed it, a brand-new trading entity can make the election internally within 75 days of forming, which lets you capture mark-to-market treatment for the current year instead of waiting. We build whichever path fits your timing.

It depends on the contract. Options on individual stocks and ETFs like SPY and QQQ are equity options taxed as capital gains by holding period. Broad-based index options like SPX, NDX, and RUT, along with regulated futures, are Section 1256 contracts taxed under the 60/40 rule, meaning 60 percent long-term and 40 percent short-term regardless of how long you held them, and marked to market at year end on Form 6781. We separate your book so each contract is reported at the correct rate.

No. Trading gains are not earnings from self-employment, even for a trader with trader tax status or a mark-to-market election, and even inside a partnership or LLC. That also means trading profit cannot by itself fund a retirement plan or support the self-employed health-insurance deduction, which is why some traders build a management-company structure to create earned income. We handle both the reporting and the planning around it.

Often no, at least not for the reason people expect. An LLC does not change the character of trading gains or lower the tax on them by itself. Where an entity genuinely helps is timing a fresh 475 election, separating active trading from long-term holdings, and enabling a management-company structure that funds a retirement plan. We tell you honestly whether an entity is worth the cost for your situation before you form anything.