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Section 475(f) Mark-to-Market Elections: Meeting Trader Tax Status, Calculating Gains and Losses, and Revocations

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Thursday, February 11, 2021

Recorded event now available

This course will explain the benefits and caveats of making a Section 475(f) mark-to-market (MTM) election for practitioners working with traders. Our investment expert will discuss trader tax status (TTS), making and revoking the election, and why now might be the right time for these elections.

Description

In the current economy, many traders have suffered significant losses. A Section 475 MTM election allows taxpayers to deduct decreases in market value immediately rather than waiting until the date of sale. These same losses are treated as ordinary losses, not capital gains subject to the annual $3,000 loss limitation, and could generate a net operating loss carryback. No wash sale or straddle adjustments are needed once the election is made.

Taxpayers who have TTS (trader tax status) can deduct business expenses, including trading expenses, and set up employer benefit plans. TTS is not an election but is a facts and circumstances test and a precursor to the MTM election.

The 475(f) election must be made by the taxpayer’s original filing deadline, for example, April 15th for individuals or March 15th for partnerships. Section 9100 relief is rarely granted for late elections since the IRS and Treasury frown on hindsight choices. Since conversely, unrealized gains are treated as ordinary income once the election is made, serious consideration should be given to the election.

Listen as our MTM expert discusses making a Section 475(f) election, including which taxpayers are the best candidates for the election, calculating and determining income and expenses for traders, and when and how to revoke the election.

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Outline

  1. Section 475(f) mark-to-market elections
  2. Trader tax status
    1. Employee benefit plans
    2. Deducting business expenses
  3. Making the election
  4. Benefits
  5. Caveats
  6. NOL carrybacks
  7. Entity considerations
  8. Applying for 9100 relief
  9. Revoking a 475(f) election

Benefits

The panelist will review these and other critical issues:

  • When is the MTM election due?
  • What are the tax benefits of the 475(f) election in addition to current ordinary loss deductions?
  • When and how taxpayers could benefit by establishing a separate entity for trading activity?
  • How difficult is it to revoke an MTM election, and what are the ramifications?
  • What are the differences between TTS and an MTM election?

Faculty

Neuschwander, Darren
Darren L. Neuschwander, CPA
Co-Managing Member
Green Neuschwander & Manning

Mr. Neuschwander is head of the production side of our CPA firm’s tax compliance and accounting practice. He is...  |  Read More