Tag Archives: cost-basis

Frequently Asked Questions (FAQs) On Trader Tax

February 19, 2015 | By: Robert A. Green, CPA

How are securities taxed?
Securities traders need to watch out for higher tax rates, wash sales, capital-loss limitations and accounting challenges. Realized transactions in securities are reported trade by trade (or line by line) on Form 8949, which feeds into Schedule D where short- and long-term capital gains rates apply. Click here to see what’s included in securities and to learn more. Visit the Tax Treatment section for tax guidance on all sorts of trading instruments.

How should I handle wash sales on securities?
See our separate FAQs on wash sale losses.

How are Section 1256 contracts taxed?
Section 1256 contract traders enjoy lower 60/40 tax rates, summary reporting, and no need for accounting. (The 60/40 rates mean 60% is taxed at the lower long-term capital gains rate and 40% is taxed at the short-term rate, which is the ordinary tax rate.) Section 1256 contracts are marked-to-market (MTM) on a daily basis and reported on Form 6781. MTM means you report both realized and unrealized gains and losses at year-end. Click here to see what’s included in Section 1256 contracts and to learn more.

What is Section 475 and can that election help me?
Section 475 MTM allows qualifying business traders to deduct trading losses in the current tax year as ordinary business losses, without capital loss limitations or wash sale loss adjustments. Short term capital gains are taxed at the ordinary rate, so taxes are the same on trading gains, but Section 475 is much better on trading losses — we call it “tax loss insurance.” GreenTraderTax recommends Section 475 for securities, but not for Section 1256 contracts where you would otherwise forgo lower 60/40 tax rates. Click here to learn more about Section 475.

Can you request a 1099B based on using Section 475?
Brokers are supposed to prepare Form 1099Bs for the everyman, not based on a taxpayer’s election or other facts and circumstances. How can a broker know for sure that a trader elected Section 475 on time and or is entitled to use Section 475, which is conditional on qualifying for trader tax status?

Can I deduct my trading-related expenses on my tax return?
Deductibility is based on tax status: whether you qualify for trader tax status (business treatment) or must use the default investor tax status (investment treatment).

Individual investors are permitted to deduct Section 212 investment expenses related to the production of investment income. Investment expenses exclude home-office, education, and Section 195 startup costs. There are many limitations for investment expenses, deductible as miscellaneous itemized deductions on Schedule A including the 2% AGI threshold, Pease limitation, listed property rules, and AMT preferences.

Business traders qualifying for trader tax status are able to deduct all trading expenses, including home office, education, and Section 195 startup costs, from gross income. Sole proprietor traders report business expenses (only) on Schedule C, and trading gains and losses are reported on other tax forms. An election is not required for claiming business expense treatment. Click here to learn how to qualify for trader tax status. Click here to learn more about business expense treatment.

Are brokerage commissions tax deductible?
Yes, but they are not separately stated tax deductions. Rather, commissions are part of your trading gain or loss — an adjustment to proceeds and cost-basis.

Do I need to fill out a Form 8949 for my securities trades?
Casual investors might have no wash sale adjustments or other cost-basis adjustments and just one securities brokerage account with a few equity transactions. They may qualify to attach their 1099B and skip inclusion of a Form 8949. Active traders won’t qualify for this short cut.

The cost-basis rules are almost fully phased in. Options and less complex fixed income securities acquired on Jan. 1, 2014 or later are reportable for the first time on Form 1099-Bs for 2014. Click here to learn more about IRS cost-basis reporting and Form 8949.

Where can I learn more about trader tax matters, including entities, retirement plans, Obamacare taxes, compliance tips, and more?
In Green’s 2015 Trader Tax Guide.

I prepared these FAQs for an online broker catering to active securities traders. 

 

Frequently Asked Questions (FAQs) On Wash Sale Losses

| By: Robert A. Green, CPA

Wash sale losses are a major source of confusion for taxpayers and brokers come tax time, so we answered several FAQs to help.

What’s the best solution for reporting wash sale losses correctly?
Trader tax accounting software that downloads all purchase and sale transaction history and calculates wash sale losses according to taxpayer rules recapped below. In most cases, taxpayers can’t solely rely on 1099Bs or broker profit and loss reports for reporting wash sales. GreenTraderTax recommends software to calculate wash sales across all your accounts and for generating a correct Form 8949. You need to reconcile Form 8949 to 1099Bs and explain the differences as best you can. Click here to learn about GreenTraderTax’s accounting service for securities traders.

What are wash sale losses?
Per IRS Pub. 550, “A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: buy substantially identical stock or securities; acquire substantially identical stock or securities in a fully taxable trade; acquire a contract or option to buy substantially identical stock or securities, or acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.”

The IRS wash sale loss rules (Section 1091) are written to protect the U.S. Treasury against taxpayers taking “tax losses” at year-end to lower tax bills while they get right back into the same positions. The IRS views that as a tax loss but not an economic loss and much of the tax code prevents that from happening.

Wash sale loss adjustments defer losses to the subsequent tax year, where a taxpayer hopefully can utilize that loss. However, if you trigger a wash sale loss with an IRA, you permanently lose the wash sale loss.

Do I have to account for wash sale losses?
Yes, if you trade securities including equities, equity options, ETFs, narrow-based indices (made up of nine or fewer securities), and bonds. Click here to learn more about securities.

What’s exempt from wash sale losses?
Wash sales do not apply to Section 1256 contracts including futures, broad-based indices, and options on futures since they are marked-to-market (MTM). That’s economic reporting and there’s no way to defer wash sale losses. Click here to learn more about Section 1256 contracts.

Business traders with a Section 475 MTM election are exempt from wash sale loss reporting on their business trading positions. Consider a timely 2015 Section 475 election to convert 2014 wash sale loss deferrals on business positions into ordinary losses on Jan. 1, 2015. Click here to learn more about Section 475. Existing individuals and partnerships must file a Section 475 election by April 15 and S-Corps by March 15.

Where do I report wash sale loss adjustments?
Report wash sale loss adjustments on Form 8949 (instructions), along with other cost-basis reporting. Learn more about cost-basis reporting in the Green Trader Tax Center.

Do brokers report wash sale loss adjustments on Form 1099B?
Yes, but in compliance with IRS rules for brokers which differ from IRS rules for taxpayers. In most cases, taxpayers need to do additional work on wash sale loss reporting.

How do broker and taxpayer rules differ on wash sales?
Brokers calculate wash sales based on identical positions (an exact symbol only) per brokerage account. Section 1091 requires taxpayers to calculate wash sales based on substantially identical positions (between stocks and options and options at different exercise dates) across all their accounts including IRAs — even Roth IRAs.

What is a substantially identical position?
Apple stock and Apple options are substantially identical, but Apple stock and Google stock are not substantially identical.

Are options subject to cost-basis reporting and wash sale loss adjustments?
Yes, IRS cost-basis reporting rules phased-in options purchased on or after Jan. 1, 2014. Brokers won’t report a wash sale loss between a stock and an option, but taxpayers must do so. Options at different expiration dates have different symbols, so they are considered substantially identical.

Can I rely on my 1099-B for reporting wash sale loss adjustments?
Only if you have one brokerage account trading equities. If you trade stocks and stock options, or just stock options and/or have multiple brokerage accounts, you can’t rely on brokerage firm Form 1099-Bs for reporting wash sale losses correctly because there will be differences in application of taxpayer rules on substantially identical positions.

Are brokerage firm profit and loss reports similar to 1099Bs?
Yes, brokers use the same accounting for the 1099B and their profit and loss reports. When brokers suggest downloading a 1099B into TurboTax, they really mean downloading their profit and loss report. Those P&L reports account for wash sales based on broker rules, not taxpayer rules.

Do I have to worry about my IRA accounts in my wash sale loss calculations?
Yes, as recapped in IRS Pub. 550 above, Section 1091 includes all types of IRAs. It’s a catastrophic mistake to trigger a wash sale loss in your IRA since you will never get that tax loss benefit as it won’t reduce distributions in retirement for a traditional IRA. It’s wise to avoid trading substantially identical positions between an IRA and your taxable accounts.

What accounts are included in the wash sale loss analysis?
It goes by taxpayer identification number. If you are married filing joint, make sure to include each spouse’s separate, joint, and IRA accounts.

Are entity accounts included in the wash sale loss analysis?
Maybe. Although Section 1091 rules do not include your entity accounts, Section 267 related party rules can drag your entities into the wash sale loss analysis. Case law can apply Section 267 related party transaction rules in the event a trader plans to avoid a wash sale loss between his entity and individual accounts. If the related party transaction “is purely coincidental and is not prearranged” Section 267 law does not apply. If Section 267 applies it can lead to wash sale loss deferral or losing the wash sale loss permanently. 

Where can I learn more about wash sales?
Read the GreenTraderTax blog “How will you handle wash sale losses on securities this tax season?” and watch the related Webinar recording.

I prepared these FAQs for an online broker catering to active securities traders. 

Wash Sale Losses

February 11, 2015 | By: Robert A. Green, CPA

Day and swing traders inevitably trigger many wash-sale (WS) loss adjustments amounting to tens or hundreds of thousands of dollars. A WS occurs when you take a loss on a security and repurchase it within 30 days (after or before).

A WS reduces the cost basis on the position sold and adds the loss to the replacement position’s cost basis. That defers the WS loss, creating phantom taxable income and capital gains taxes.

It’s okay to incur WS losses during the year, but try to avoid delaying them to the following year. Deferring a loss from November to December is acceptable; however, postponing a loss from December 2023 to January 2024 is not.

Learn how to “break the WS chain” at year-end. For example, sell your entire position in security A by Dec. 20, 2023, and don’t repurchase it for 30 days, around Jan. 21, 2024. That doesn’t provide a WS bridge from the tax year 2023 to 2024. You may deduct the whole year of WS losses in 2023.

 When you get your broker-issued Form 1099-B showing massive WS loss adjustments, don’t panic. What’s critical is the number of WS open at year-end for which you repurchased positions within 30 days in January 2024. For example, suppose the WS loss adjustments column on the 1099-B is $500,000. If you avoided all WS at year-end by refraining from repurchases in January, the cost basis column should be $500,000 greater than your actual purchase price.

The 1099-B calculates taxable income as follows: Proceeds, minus cost basis, plus WS loss adjustments equals net taxable capital gain or loss.

There’s a quirky WS rule between taxable and IRA accounts. The WS loss becomes permanent if you take a loss in a taxable account and repurchase the security position in an IRA within 30 days. The IRS does not allow you to add the WS loss adjustment to the IRA cost basis. Yet, the IRS requires a reduction of the cost basis in the taxable account. Avoid this problem with a “do not invest list” in the IRAs vs. what you trade and invest in taxable accounts. This WS rule applies to taxable vs. IRA accounts; an IRA account is not subject to WS losses.

For more information, see Green’sTraderTax Guide Chapter 4, Accounting for Trading Gains & Losses.

How Will You Handle Wash Sale Losses On Securities This Tax Season?

January 23, 2015 | By: Robert A. Green, CPA

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If you actively trade equities and equity options and or securities in more than one account, unless you use proper software on all your individual taxable and IRA accounts, you will probably handle wash sales wrong and under-report or over-report your taxable income. In these cases, you can’t solely rely on 1099-B reporting because brokers use a different set of tax compliance rules than taxpayers in calculating and reporting wash sale losses.

The IRS cost-basis reporting saga continues
Accounting for trading gains and losses is the responsibility of securities traders; they must report each securities trade and related wash-sale adjustments on IRS Form 8949 in compliance with Section 1091, which then feeds into Schedule D (capital gains and losses). Form 8949 came about after the IRS beefed up compliance for securities brokers starting in 2011, causing headaches, confusion and additional tax compliance cost. Congress found tax reporting for securities to be inadequate and thought many taxpayers were underreporting capital gains. The cost-basis rules are almost fully phased-in. Options and less complex fixed income securities acquired on Jan. 1, 2014 or later are reportable for the first time on Form 1099-Bs for 2014. Inclusion of complex debt instruments on 1099-Bs is delayed until Jan. 1, 2016.

Broker-issued securities Form 1099-Bs provide cost-basis reporting information, but they often don’t provide taxpayers what they need for tax reporting. For example, brokers calculate wash sales based on identical positions (an exact symbol only) per separate brokerage account. But Section 1091 requires taxpayers to calculate wash sales based on substantially identical positions (between stocks and options and options at different exercise dates) across all their accounts including IRAs — even Roth IRAs.

Taxpayers report securities proceeds, cost basis, adjustments, holding period and capital gain or loss – short term vs. long-term (held over 12 months) on Form 8949. According to the form’s instructions, taxpayers without wash sale and other adjustments to cost-basis may simply enter totals from broker 1099-Bs directly on Schedule D and skip filing a Form 8949. After all, the IRS gets a copy of the 1099-B with all the details.

But, there is a protracted ongoing problem for many taxpayers with securities sales. For 2014 tax reporting, many 1099-Bs may not report wash sales or other cost-basis adjustments leading taxpayers or their tax preparers to choose the short-cut option: to enter totals on Schedule D and omit the headache of preparing a Form 8949. But, we know very well that taxpayers are supposed to calculate wash sales differently from brokers, and there could be wash-sale adjustments that taxpayers should make on Form 8949, which probably changes the net capital gain or loss amount.

Section 1091 wash sale loss rules for taxpayers
Per IRS Publication 550: A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

  • Buy substantially identical stock or securities,
  • Acquire substantially identical stock or securities in a fully taxable trade,
  • Acquire a contract or option to buy substantially identical stock or securities, or
  • Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.

An example of how wash-sale rules differ between brokers and taxpayers
IRS regulations require brokers to calculate and report wash sales per account based on identical positions (it’s reiterated in Form 1099-B instructions). Here is an example of broker rules: an account holder sells 1,000 shares of Apple stock for a loss and buys back 1,000 shares of Apple stock 30 days before or 30 days after in that same account. According to the 1099-B, that’s a wash-sale loss deferred (added) to the replacement position cost-basis. But, if the account holder buys back Apple options instead of Apple stock, according to broker rules it’s not a wash sale because an option is not “identical” to the same company’s stock – however the taxpayer must report it as a wash sale. Broker computer systems are programmed to calculate wash sales based on an identical symbol, and stock and options and options at different exercise dates have different symbols. In that same example, if the taxpayer bought back Apple stock in a separate account, including an IRA, the broker would not treat it as a wash sale, but according to Section 1091, the taxpayer must treat it as a wash sale.

Don’t assume that substantially identical positions are worse for wash-sale calculations; they could actually be better. Subsequent transactions with profit can absorb prior wash sales before year-end, which can fix a wash-sale problem. So a gain on an option can absorb a wash-sale loss on a stock. Note that Apple stock and Apple options are substantially identical, but Apple stock and Google stock are not substantially identical.

Ways to avoid Form 8949
Business traders qualifying for trader tax status are entitled to elect Section 475 mark-to-market (MTM) accounting elected on a timely basis. Section 475 business trades are not reported on Form 8949; they use Form 4797 Part II (ordinary gain or loss). Although Section 475 extricates traders from the compliance headaches of Form 8949 (and Section 475 trades are exempt from wash sale rules), it does not change their requirement for line-by-line reporting on Form 4797.

Form 8275-R disclosure
If you or your local tax preparer decide to cut corners and disregard Section 1091 taxpayer rules for calculating wash sales across all accounts based on substantially identical positions — choosing instead to rely on broker 1099-B reporting in spite of known broader wash-sale conditions (explained in Chapter 4) — then you need to “disclose items or positions that are contrary to Treasury regulations” on Form 8275-R included with your tax return filing. We asked a leading malpractice-insurance carrier for tax preparers about this issue and they said, “there is coverage for regulatory inquiries but not if the firm is investigated for preparer penalties.” Whether you knowingly or ignorantly cut corners relying on 1099-Bs for active securities traders, it’s a circular 230 infraction and ignorance is not an excuse. Use our guides and suggestions to do it right.

Software for wash sales
When you consider a securities trade accounting software and Web-based solution, ask the vendor if they calculate wash sales based on Section 1091 and if not, you may want to skip that solution.

TurboTax ads say they make taxes simple and they imply you can just import your 1099-B. You’ll spend a lot of time finding their small fine print about having to make Section 1091 adjustments on your own.

Don’t tackle this minefield on your own, get professional help
Every case is different and our CPAs will look for ways to work with what you provide us, and in some cases, we can make manual adjustments. For example, if you don’t have open wash sales at year-end, we may be able to find ways to generate proper tax forms using 1099Bs, broker tax reports, and software solutions that you provided to us. Green NFH also offers a securities trade accounting service using proper software to be fully compliant with Section 1091.

We used several excerpts from Green’s 2015 Trader Tax Guide for this blog. 

Accounting For Traders

September 6, 2014 | By: Robert A. Green, CPA

Presented by CPAs Robert A. Green and Darren Neuschwander

The best current accounting solutions for traders including Tradelog and a review of our survey results.

*The results of their recent survey on trade accounting software and solutions.
* Accounting software and other solutions for generating Form 8949 and/or Form 4797 with line-by-line reporting of each trade.
*The pros and cons of the leading solutions available and which one may be best for you.
*Deductr, an expense accounting and tax-compliance solution. (starts at 37 minute mark)
*How to pair a specialized trade accounting solution with a customized expense accounting solution.

Accounting Services

September 4, 2014 | By: Robert A. Green, CPA

We offer our trade accounting service only with our tax compliance service, not as a stand-alone service.

We offer an accounting service for traders in securities and Section 1256 contracts using specialized software that’s robust and can handle the most active traders. Our accounting service respects our tax content across the board. We’ve been rendering this accounting service since 2000.

We also offer an accounting service for cryptocurrency traders. Accounting in this area can be challenging without the proper software. All types of cryptocurrency transactions need to be included. Otherwise, the results cannot be accurate. Additionally, the IRS still needs to answer some questions about cryptocurrency tax treatment. We can assure you that we will stay on top of the developments.

Accounting Service For Securities Traders

Accounting for trading gains and losses is the responsibility of securities traders; they must report each securities trade and related wash-sale loss adjustments on IRS Form 8949 in compliance with Section 1091 wash-sale loss rules, which then feed into Schedule D (capital gains and losses).

Broker-issued securities Form 1099-Bs provide cost-basis reporting information. Still, they don’t provide taxpayers with everything they need for tax reporting if the taxpayer has multiple trading accounts or trades equities and equity options. Brokers calculate wash sales based on identical positions (an exact symbol only) per separate brokerage account. However, Section 1091 WS loss rules require taxpayers to calculate wash sales based on substantially identical positions (between equities and equity options and equity options at different exercise dates) across all their accounts, including IRAs—even Roth IRAs. The best accounting solution for generating a correct and compliant Form 8949 is software that’s compliant with Section 1091. Don’t just rely on a Form 1099-B. (Exception: if there is only one brokerage account, the trading is only in equities, and there are no cost-basis adjustments, including wash-sale losses.) Many tax preparers and taxpayers continue disregarding Section 1091 rules, even after acknowledging differences with broker 1099-B rules. They do so at their peril if caught by the IRS.

When you consider a securities trade accounting software and Web-based solution, ask the vendor if they calculate wash sales based on Section 1091, and if not, you may want to skip that solution. TurboTax ads imply you can import your 1099-B. You’ll spend a lot of time finding out in their small fine print about making Section 1091 adjustments on your own. Some brokers offer professional trade accounting software, but it makes wash-sale loss adjustments on identical positions, which is non-compliant.

We offer a professional accounting service.
We download your actual trades for the tax year into our trade accounting solution. We also download January of the subsequent year looking for wash sale (WS) loss adjustments at the current year-end if you are not using Section 475 MTM. We will generate Form 8949 compliant with Section 1091 rules or Form 4797 for Section 475 trades. We also prepare Form 6781 for Section 1256 contracts. You can give these tax forms to your tax preparer or our CPAs for our tax compliance service.

Contact us to purchase this service.

Accounting Service For Cryptocurrency Traders

If you invested in cryptocurrencies and sold or spent some during the year, it likely triggered a capital gain, loss, or other income, which you should report on your tax return. There is taxable income or loss on all cryptocurrency transactions, including cryptocurrency-to-currency trades, cryptocurrency-to-cryptocurrency trades, receipt of cryptocurrency in some hard fork or split transactions, purchases of goods or services using a cryptocurrency, and mining income. There are various fees related to cryptocurrency transactions, and the tax treatment varies.

Cryptocurrency tax reporting is complicated and voluminous. We use a cryptocurrency accounting solution to download transactions from your cryptocurrency exchanges. You need to review the download file to be sure all your transactions were imported correctly. It’s normal to have some transactions entered manually.

By default, we use the first-in-first-out (FIFO) accounting method for cost-basis on cryptocurrency capital gain and loss transactions. The IRS requires the “specific identification” (SI) accounting method on intangible property. Still, most cryptocurrency traders are unable to use SI. (See https://greentradertax.com/fifo-vs-specific-identification-accounting-methods).

As intangible property, cryptocurrencies are not subject to wash-sale loss rules for securities. A Section 475 election also cannot apply to cryptocurrencies since they’re not a security or commodity. (See our coin tax and accounting content.)

Contact us to purchase this service.

If you have any questions about our accounting services, please contact us.

Accounting Solutions

August 29, 2014 | By: Robert A. Green, CPA

I recommend keeping your accounting for trading gains and losses separate from expenses. A consumer off-the-shelf accounting program is acceptable for keeping track of costs, non-trading income, home office deductions, and itemized deductions. However, you may need a specialized software program or professional service for trade accounting for securities. Futures gain/loss accounting may not be necessary, as traders generally can rely on the one-page 1099-B with summary reporting using MTM reporting. Forex contract traders can depend on the broker’s annual tax reports and should use summary reporting. Spot forex is not a covered security, so Form 1099-B isn’t issued. 

U.S.-based cryptocurrency exchanges issue Form 1099-K, 1099-Misc., or 1099-B to taxpayers reaching a certain threshold of transactions, and most provide online tax reports. Consider a cryptocurrency trade accounting solution. 

SECURITIES ACCOUNTING IS CHALLENGING

Taxpayers should report proceeds, cost basis, wash-sale loss, other adjustments, holding period, and capital gain/loss for each trade on Form 8949. It’s inappropriate to use summary reporting. Details for Form 8949 are on broker-issued Form 1099-Bs. According to Form 8949 instructions, taxpayers without wash sales and other adjustments to cost basis may enter totals from broker 1099-Bs directly on Schedule D and skip filing Form 8949. After all, the IRS gets a copy of the 1099-B with all the details. 

Many taxpayers believe that they don’t have wash sales when they often have many to report to comply with IRS rules for taxpayers, which differ from rules for brokers. 

For more information, see Green’sTraderTax Guide, Chapter 4, Accounting for Trading Gains & Losses.

 

Securities

August 28, 2014 | By: Robert A. Green, CPA

Securities traders have ordinary tax rates on short-term capital gains, wash-sale loss adjustments, capital-loss limitations, and accounting challenges.

Securities include

  • U.S. and international equities (stocks)
  • U.S. and foreign equity (stock) options
  • narrow-based indexes (an index made up of nine or fewer securities)
  • options on narrow-based indexes
  • securities ETFs structured as registered investment companies (RIC)
  • options on securities ETF RICs
  • commodity ETFs structured as publicly traded partnerships (PTP)
  • volatility ETNs structured as debt instruments
  • bonds
  • mutual funds
  • single-stock futures

The IRS taxes securities transactions when a taxpayer closes an open trade—hence the term “realization method.” Taxpayers can defer capital gains by holding open securities positions at year-end. With “tax-loss harvesting,” investors sell to realize losses before year-end 2023. Do not re-enter those positions within 31 days; otherwise, the planned loss might defer to 2024 as a wash-sale loss adjustment. Wash sales during the year can be okay, provided you close them out before year-end. 

Short-term capital gains (STCG) use ordinary tax rates, with progressive tax brackets currently up to 37% for 2023 and 2024. Long-term capital gains (LTCG) rates are significantly lower and apply to sales of securities held for 12 months or more. The LTCG rates are 0% for the 10% and 12% ordinary brackets, 15% in the middle brackets, and 20% in the top 37% bracket. 

The 1099-B displays each opening and closing securities trade and wash-sale loss adjustment with the tax realization method. Report those details on Form 8949, which feeds into Schedule D, where short- and long-term capital gains rates apply. (See accounting and tax reporting for securities in Chapter 4.)

The mark-to-market (MTM) accounting method is different from the realization method. MTM also reports unrealized capital gains and losses at year-end by imputing sales of open positions using year-end prices. Traders eligible for TTS can elect Section 475 MTM ordinary gain or loss on securities and commodities. Securities trades using Section 475 are exempt from wash-sale loss adjustments and the $3,000 capital loss limitation. Qualified business income (QBI) includes net Section 475 gains, so TTS traders can get a 20% QBI deduction if they are under the income cap. (A timely 475 MTM election is critical; see Chapter 2.)

If you would like more information, you can see Green’sTrader Tax Guide Chapter 3, Tax Treatment of Financial Products.