Trader Tax Status

Trader Tax Status can unlock meaningful tax savings for eligible active traders.

Trader Tax Status, or TTS, allows qualifying active traders to use business treatment for trading expenses and may open the door to additional planning benefits when elections and entity structures are set up on time.

The first step is to determine whether you qualify. TTS is based on your actual trading activity. There is no IRS form that automatically gives you TTS, and there is no court-approved minimum trade count. Courts look at the full trading pattern, including volume, frequency, continuity, holding periods, time spent, and whether you seek to profit from short-term market swings rather than long-term investment appreciation.

If you qualify for TTS, some benefits, such as business expense treatment, can generally be claimed after the year ends. Other benefits, including Section 475 mark-to-market treatment, employee-benefit plans, and state SALT cap workaround planning, usually require timely elections, entity setup, payroll, or state-level planning.

TTS Business Expense Treatment

Qualifying TTS traders may deduct ordinary and necessary trading business expenses. These may include:

home office expenses,
trader education,
market data,
business software,
trading equipment,
seminars,
professional fees,
stock borrowing fees,
business services, and
other costs connected with the trading business.

Depending on the facts, traders may also benefit from startup-expense rules, organization-cost rules for entities, depreciation or expensing for equipment, and software-related deductions.

For example, if a qualifying TTS trader has $20,000 of deductible trading business expenses and home office deductions, and the combined federal and state tax rate is 40%, the tax savings may be about $8,000.

The 2025 OBBBA restored 100% bonus depreciation for qualifying property, making equipment and technology planning more valuable for eligible traders.

Section 475 Mark-To-Market Treatment

Securities traders with TTS should consider whether to make a timely Section 475(f) mark-to-market election.

Section 475 can operate like tax-loss insurance for qualifying securities traders. It generally converts covered trading gains and losses into ordinary gains and losses, helps avoid wash-sale loss deferrals on covered securities, and avoids the $3,000 capital loss limitation for covered trading losses. Profitable traders with Section 475 might qualify for a 20% QBI deduction.

For 2026 treatment, existing calendar-year individuals generally had to attach the election statement to the timely filed 2025 tax return, without extensions, or to a timely extension request, generally by April 15, 2026. Existing calendar-year partnerships and S corporations generally had a March 15, 2026 deadline.

A special books-and-records rule applies only to a new taxpayer — one for whom no federal income tax return was required for the prior year — not merely to someone who recently started trading. A new pass-through TTS entity, such as an LLC/partnership, or S corporation, can elect Section 475 by internal resolution within 75 days of its inception (formation).

QBI Deduction For Profitable Section 475 Traders

Profitable Section 475 traders may be eligible for the 20% qualified business income deduction, subject to taxable-income thresholds and other limits.

QBI generally excludes capital gains, capital losses, and portfolio income, which is why Section 475 ordinary income can matter for profitable traders. Trading is generally treated as a specified service trade or business, so high-income taxpayers may face phaseouts or limitations.

Health Insurance And Retirement Plan Benefits

A properly structured TTS S corporation may help unlock deductions for owner health insurance premiums and retirement plan contributions, such as a Solo 401(k), when handled through payroll and earned-income planning.

This planning should be set up before year-end. Traders should not wait until tax time to address payroll, retirement plan contributions, or health insurance treatment.

SALT Cap Workaround Planning

A TTS partnership or S corporation may also use a state pass-through entity tax, or PTET, as a SALT cap workaround where available.

The 2017 TCJA capped individual SALT deductions at $10,000. The 2025 OBBBA raised the SALT cap to $40,000 for 2025, with inflation adjustments before reverting to $10,000 in 2030.

State rules vary, so traders should confirm whether the PTET election is available and worthwhile in their state.

Qualification Comes First

TTS benefits are valuable, but they depend on qualification.

GreenTraderTax uses practical planning benchmarks such as approximately 720 total trades per year, counting buys and sells separately, and an average holding period of 31 days or less. These are planning tools, not legal thresholds.

The courts look at the full trading pattern. Bunching trades into short bursts, holding positions too long, trading only sporadically, or failing to keep good records can weaken the TTS position.

For a deeper explanation, see:

For more information, see Green’s Trader Tax Guide, Chapter 1: Trader Tax Status.