Trader’s 2026 Year-End Tax Playbook: OBBBA, TTS, and Smart Moves Before December 31

Last Updated on October 13, 2026 by Robert Green

2026 is the first full year under the One Big Beautiful Bill Act (OBBBA), and traders have plenty to think about before the closing bell on December 31. The core trader tax rules haven’t changed: trader tax status (TTS), the Section 475 mark-to-market election, and the 60/40 treatment for Section 1256 contracts all still apply. What has changed is how loss limits, the QBI deduction, the SALT cap, and retirement planning fit together. If you plan now, you can save real money. If you wait until April, most of these moves will be gone.

Here’s my year-end roadmap for traders in equities, options, futures, and crypto. This is Part 1 of a two-part series. Part 2 covers year-end planning for trading entities: S-corps, LLCs, officer compensation, health insurance, Solo 401(k)s, and the PTET workaround for the SALT cap.

This playbook covers federal tax rules. States often don’t follow federal rules on SALT, PTET, bonus depreciation, Section 179, QBI, estimated taxes, and retirement and charitable deductions. Check your state’s rules, or ask your tax advisor, before acting.

1. Trader Tax Status and Section 475

TTS is what separates a trading business from an investor. It isn’t an election, and there’s no IRS form for it. You either qualify based on your trading activity, or you don’t. The tax code doesn’t define TTS, so the courts decide. They look for trading that is substantial, frequent, regular, and continuous, aimed at catching short-term price swings rather than holding for appreciation, dividends, or interest. If you trade nearly every market day, with substantial volume, and you have a real business setup, you’re in the zone.

Why Section 475 matters. TTS is a condition for using Section 475. You can make the Section 475 election only for a trading business that qualifies for TTS. TTS by itself lets you deduct business expenses. Section 475 is the bigger prize. Once you qualify for TTS and make a timely election, gains and losses on your business trades become ordinary. That means no $3,000 annual capital loss limit and no wash-sale headaches on those trades. Profitable Section 475 traders may also qualify for the 20% QBI deduction on net trading income, as long as taxable income is below the phase-out range for specified service businesses (see Section 3).

Keep your investments separate. If you also hold investments, they can keep capital gain treatment. You need to identify each investment position in your records by the end of the day you buy it (IRC § 475(f)(1)(B)). The easiest way is a separate account designated for investments. If you wait until you know whether a position went up or down, the IRS can treat it as a trading position.

If you stopped trading mid-year. TTS depends on your facts. A short break, like a vacation, doesn’t end your trading business. But say you took a sabbatical starting June 30, 2026, and didn’t return to full-time trading for the rest of the year. Then your TTS likely ended on that date. Use Section 475 through June 30. After that, your trades are investment trades. Your election stays on file, but it’s effectively suspended until you qualify again. For the rest of 2026, wash sales and the $3,000 capital loss limit apply to you again, so manage them before year-end. If you don’t plan to return to full-time trading, you can revoke the election for 2027 by attaching a statement to your 2026 return or extension by April 15, 2027. Keep in mind that after a revocation, you generally can’t re-elect Section 475 for 5 years without the IRS’s consent (Rev. Proc. 2025-23).

Missed the April 15 deadline? Set up Section 475 for 2027. If you missed the April 15, 2026 deadline, you generally can’t elect Section 475 for your existing individual trading business for 2026. You have two ways to get Section 475 for 2027:

Elect as a sole proprietor. Attach an election statement to your 2026 Form 1040, or to your extension (Form 4868), by April 15, 2027. Then adopt Section 475 on Form 3115 with your 2027 tax return. This is the simplest route, and you don’t need a new entity. If you have large capital-loss carryovers, keep in mind that they can offset Section 475 ordinary gains only up to $3,000 a year. They can still offset capital gains from your investment accounts and Section 1256 contracts. Model whether delaying the election makes sense.
Form a new entity. A new partnership or S-corp starting January 1, 2027, can elect Section 475 internally by March 16, 2027. I cover this in Part 2.

If all you want is Section 475, the sole proprietor election is enough. Consider an entity if you also want health insurance and retirement plan deductions, which require S-corp officer wages.

2. Excess Business Losses and NOLs

Did you have a big Section 475 trading loss this year? Then you need to know about the excess business loss (EBL) limit, which OBBBA made permanent.

The 2026 limits. Your net business losses can offset your other income, such as wages, interest, and investment gains, only up to $256,000 if you’re single, or $512,000 if you’re married filing jointly (Rev. Proc. 2025-32). Wages don’t count as business income for this test, including your spouse’s wages (IRC § 461(l)(3)(A)).

What happens to the excess. Any loss above the limit carries forward to 2027 as a net operating loss (NOL). Carrybacks are gone, so you can’t get a refund from prior years. Next year, an NOL can offset only 80% of your taxable income. Large losses also affect your QBI deduction in future years (see Section 3).

My favorite move: a Roth conversion. If you have a large allowed loss and little other income, the unused loss becomes an NOL carryforward, which can offset only 80% of taxable income in future years. Instead, consider converting part of your traditional IRA to a Roth before December 31. The conversion income isn’t business income, so it doesn’t raise your EBL limit. It uses the loss now, so you move retirement money into a tax-free Roth at little or no tax cost. Run the numbers carefully, or have your tax advisor run them, before you pull the trigger.

3. The QBI Deduction: Watch the Income Thresholds

OBBBA made the 20% qualified business income (QBI) deduction permanent. For traders, there’s a catch.

Trading is a specified service business. The tax code puts trading in the same category as law, accounting, and consulting: a “specified service trade or business.” That means you get the QBI deduction only if your taxable income is below the phase-out range.

2026 phase-out ranges (Rev. Proc. 2025-32):

Single: the phase-out starts at $201,750, and the deduction is fully lost at $276,750.
Married filing jointly: the phase-out starts at $403,500, and the deduction is fully lost at $553,500.
Married filing separately: the phase-out starts at $201,775, and the deduction is fully lost at $276,775.

Who benefits. Capital gains don’t count as QBI. In my view, Section 475 ordinary trading gains, minus your trading business expenses, do count. That means the QBI deduction primarily benefits Section 475 traders with moderate incomes. If you haven’t elected Section 475, your gains are mostly capital, and you’ll have little or no QBI.

Losses carry over. A net Section 475 loss is negative QBI. It carries forward and reduces your QBI from trading in later years. If part of the loss is disallowed under the EBL limit, it counts against QBI in the year you finally deduct it.

Year-end tips:

If you’re close to the threshold, well-timed deductions can keep you under it. Size any Roth conversion with QBI in mind.
If your taxable income falls inside the phase-out range, a W-2 wage limit also phases in (IRC § 199A(b)(3)). Sole proprietor traders have no W-2 wages, so they lose more of the deduction. An S-corp that pays officer wages can preserve more of it. Above the range, the deduction is gone for traders no matter what wages you pay (see Part 2).
New for 2026, there’s a $400 minimum QBI deduction if you have at least $1,000 in QBI from a business in which you materially participate.

4. Business Expenses and Equipment

If you qualified for TTS in 2026, review your business expenses now. Many of them must be paid or set up by December 31.

Equipment purchases. OBBBA permanently restored 100% bonus depreciation for property acquired after January 19, 2025. Section 179 expensing is also available, up to $2,560,000 for 2026 (Rev. Proc. 2025-32). Section 179 can’t create a loss, but bonus depreciation can. You can also expense items costing $2,500 or less each under the de minimis safe harbor. Here’s the catch traders miss: clicking “buy” on December 31 isn’t enough. Your new computers, monitors, or servers must be delivered and set up, ready to use, by year-end. And buy what you actually need. A tax deduction doesn’t make an unnecessary purchase a good deal.

Startup costs. If you’re starting a TTS business, expenses you pay before the business begins, such as education and setup costs, are startup costs. You can deduct up to $5,000 of them in your first year. That $5,000 shrinks dollar-for-dollar once startup costs exceed $50,000, and you deduct the rest over 15 years (IRC § 195). Once your business begins, ordinary expenses are deductible as business expenses rather than startup costs. If you form an entity, organization costs get their own allowance (see Part 2).

Prepay business expenses. If you have TTS, you can generally deduct prepaid trading software, data feeds, and advisory fees in 2026, as long as the benefit doesn’t extend beyond the end of 2027 or 12 months after it starts, whichever comes first. Without TTS, investment expenses aren’t deductible at all.

5. Wash Sales and Tax-Loss Harvesting

Wash sales are where traders get the biggest surprises in April. A little discipline in December goes a long way. I cover the details in my three-part wash-sale series, listed at the end of this section.

Avoid phantom income at year-end. A wash sale doesn’t eliminate your loss. It moves the loss into the cost basis of your replacement position. That’s usually fine during the year. The problem comes when you still hold the replacement on December 31. Then the loss is deferred into 2027, and you may pay tax in 2026 on gains with no offsetting losses.

Don’t rely on your broker. Brokers report wash sales only for identical securities within a single account. The tax rule also covers your other accounts, your spouse’s accounts, your IRAs, and “substantially identical” positions. Your 2026 Form 1099-B isn’t due until February 16, 2027, and many brokers send theirs in late February or March. That’s too late to change anything. Use a trade accounting program like TradeLog in early December to find the losses that would be deferred into 2027, and close or avoid those replacement positions before year-end.

Watch for these traps:

IRAs: If you sell at a loss in a taxable account and buy back in your IRA within 30 days before or after, the IRS says the loss is permanently lost (Rev. Rul. 2008-5). Watch automatic IRA purchases and dividend reinvestments in December.
Options: Buying a call, or selling a deep-in-the-money put, on the same stock within the window can trigger a wash sale.
Similar ETFs: Swapping between funds from different sponsors, like SPY and VOO, is generally treated as no wash sale, but the IRS hasn’t issued guidance.
Section 1256 contracts: ES futures and SPX options are generally treated as outside the wash-sale rules.

Break the chain. To lock in a 2026 loss, close any substantially identical positions you bought in the 30 days before the loss sale across all accounts. Then stay out for 30 days after the sale. For a December 31 sale, stay out through January 30, 2027. January 31 is the first safe day to buy back.

A Section 475 fresh start for 2027. If you elect Section 475 for 2027, the TTS business positions you hold at year-end are marked to market as of January 1, 2027, and the result is an ordinary Section 481(a) adjustment on your 2027 return. Deferred wash-sale losses on those positions are generally picked up in that adjustment. A net negative adjustment is deducted in full in 2027. A net positive adjustment is generally spread over four years, but you can elect to take it all in 2027 if it’s less than $50,000 (Rev. Proc. 2015-13). This doesn’t fix wash sales tied to IRAs or investment accounts.

Crypto. Under current law, the wash-sale rule doesn’t apply to bitcoin and other digital assets you hold directly, but pending legislation could change that. CME crypto futures are Section 1256 contracts. Crypto ETFs and ETPs can be treated differently; see my spot bitcoin ETP analysis.

My wash-sale series:

Wash Sale Losses for Traders: How to Avoid Phantom Income and Costly Tax Traps
Wash-Sale Accounting: Why Broker Form 1099-B Reporting Is Not Taxpayer Compliance
How TTS Traders Report Section 475 MTM Gains and Losses on Form 4797, including the election, Form 3115, and the Section 481(a) adjustment

6. Capital Gains, the 0% Bracket, and Section 1256

Use the 0% bracket. If your 2026 income is low, for example during a sabbatical, a career break, or a losing trading year, you might pay 0% on long-term capital gains. That applies to taxable income up to $49,450 if you’re single or married filing separately, $98,900 if you’re married filing jointly, and $66,200 if you’re a head of household (Rev. Proc. 2025-32). The 0% rate applies only to long-term capital gains and qualified dividends. It doesn’t apply to short-term trading gains or Section 475 ordinary income.

How it works. Your ordinary income, such as wages, interest, short-term gains, and IRA withdrawals, is taxed first. Long-term gains and qualified dividends stack on top of it. Whatever room is left under the threshold is taxed at 0%. A common myth is that going $1 over the line costs you on your entire gain. It doesn’t. Only the gain above the threshold is taxed at 15%.

Harvest gains, not just losses. The wash-sale rule applies only to losses. You can sell appreciated long-term positions, realize the gain at 0%, and buy them back right away at a higher cost basis. Do check the ripple effects. A larger gain raises your AGI, which can increase state taxes, reduce ACA premium credits, and affect income-tested deductions.

The Section 1256 advantage. Regulated futures, broad-based index options like SPX, and certain foreign currency contracts receive a 60/40 treatment: 60% of the gain is taxed as long-term and 40% as short-term, regardless of how long you held the position. Open positions are marked to market at year-end, and you report all of it on Form 6781. You don’t need TTS to get this. A Section 475 election that covers only securities doesn’t take away 60/40 treatment on your futures. Spot forex is different: it defaults to ordinary treatment under Section 988 unless you elect out.

Section 1256 and the 0% bracket. The 40% short-term portion is taxed at ordinary rates and counts toward taxable income first. The 60% long-term portion can qualify for 0% to the extent room remains under the threshold. In a low-income year, a good part of your futures profits could be tax-free.

Futures losses can go back three years. If you have a net Section 1256 loss in 2026, you can elect to carry it back for up to 3 years and receive a refund (IRC § 1212(c)). Make the election by checking box D on your 2026 Form 6781. Then claim the refund on Form 1045 or Form 1040-X for the carryback years. The carryback offsets only prior-year Section 1256 net gains, and it can’t create or increase a net operating loss in those years. It isn’t available for losses on securities. Ask your tax advisor to model it.

7. Retirement Moves

Trading gains don’t fund a retirement plan. Trading gains aren’t earned income, even with TTS and Section 475, so a sole proprietor trader can’t fund a Solo 401(k) or SEP-IRA from them (IRC § 1402(a)(3)). To make retirement contributions based on trading, you need an S-corp that pays you officer wages. I cover that in Part 2. If you have wages or self-employment income from another source, you can contribute based on that income.

RMDs. Required minimum distributions now start at age 73, and that rises to 75 in 2033. If you turned 73 in 2025, you had until April 1, 2026 to take your first RMD. Your second RMD is due by December 31, 2026. Roth IRAs, and now Roth 401(k)s, have no RMDs during your lifetime.

Roth conversions. In a loss year or a low-income year, a Roth conversion before December 31 can be one of your best moves (see Section 2).

8. NIIT and the SALT Cap

The 3.8% net investment income tax. This applies once your modified AGI exceeds $200,000 if you’re single, $250,000 if you’re married filing jointly, or $125,000 if you’re married filing separately. These thresholds aren’t indexed for inflation, so more traders get caught every year. Traders are often surprised that Section 475 ordinary trading gains count too. The tax code specifically includes trading businesses.

The $40,400 SALT cap. For 2026, you can deduct up to $20,200 if married filing separately. Higher earners lose part of it. Once your modified AGI exceeds $252,500 (if married filing separately), the cap shrinks by 30 cents for each dollar over, down to $5,000 (if married filing separately). You hit the floor at about $606,333 of modified AGI (Schwab). The higher cap is scheduled to drop back to $10,000 in 2030. If you’re already over the cap, prepaying state taxes in December won’t help. A trading partnership or S-corp may be able to work around the cap with a pass-through entity tax (PTET) election, which I cover in Part 2.

9. Estimated Taxes and Cash Flow

What the penalty costs. The estimated tax penalty works like interest. It’s charged at the IRS underpayment rate, which is the federal short-term rate plus 3 percentage points and is reset every quarter. For 2026, the rate was 7% in the first quarter, 6% in the second, and 7% in the third and fourth (IRS). The 7% fourth-quarter rate applies specifically to estimated tax underpayments (Rev. Rul. 2026-15).

How it’s calculated. The IRS figures the penalty separately for each of the four 2026 installment due dates: April 15, June 15, September 15, 2026, and January 15, 2027. For each one, it takes the amount you underpaid, multiplies it by the underpayment rate, and multiplies it by the number of days the payment was late. The penalty runs until you pay or until April 15, 2027, whichever comes first. Later payments are applied to the earliest underpayment first. The penalty isn’t deductible. You owe no penalty if your 2026 tax, after withholding and credits, is less than $1,000.

The penalty is often cheaper than you think. At 7% a year, being short $10,000 for one quarter costs roughly $175. Don’t sell positions at a bad time or empty your trading account just to make an estimated payment. Compare the penalty to what your capital could earn in the market.

Use a safe harbor. You avoid the penalty if you pay at least 90% of this year’s tax or 100% of last year’s tax in four equal installments. Use 110% of last year’s tax if last year’s AGI was over $ 75,000 (if married filing separately).

Annualize if your income was uneven. Traders’ income rarely comes in evenly. If your profits came late in the year, the annualized method on Form 2210, Schedule AI, aligns your required payments with when you actually earned the money and can reduce or eliminate penalties.

Withholding is the year-end fix. The IRS treats income tax withholding as if it were paid evenly throughout the year, even if it all happens in December. If you or your spouse have wages, increasing withholding at year-end can cover earlier shortfalls. Another option is to take an IRA distribution with withholding and roll over the full gross amount within 60 days, using other funds to replace the tax that was withheld. Otherwise, the withheld amount is taxable and, if you’re under 59½, may be subject to the 10% early-withdrawal penalty. RMDs can’t be rolled over, and you can do only one IRA-to-IRA rollover every 12 months.

Check your state’s rules. States set their own estimated tax rules, due dates, safe harbors, and penalty rates. Many follow the federal approach, but there are important differences. In California, for example, you pay 30% of your estimated tax by April 15, 40% by June 15, nothing in September, and 30% by January 15. If your current-year California AGI is 500,000 if married filing separately), you can’t use last year’s tax as a safe harbor. You have to pay 90% of this year’s tax (California Franchise Tax Board). Federal withholding also doesn’t fix a state shortfall, so you need state withholding for that. Check your state’s rules, or ask your tax advisor.

10. Charitable Giving and Other OBBBA Breaks

Give stock, not cash. Donate appreciated securities you’ve held more than a year to a charity or donor-advised fund. You generally deduct the full market value (up to 30% of AGI) and never pay tax on the gain.

QCDs if you’re 70½ or older. You can send up to $111,000 in 2026 directly from your IRA to charity, tax-free (Notice 2025-67). Once you’re 73, it also counts toward your RMD. Donor-advised funds aren’t eligible recipients.

New charitable rules starting in 2026:

If you itemize, the first 0.5% of your AGI donated to charity isn’t deductible.
If you’re in the 37% bracket, your itemized deductions are worth at most 35 cents per dollar. OBBBA does this by reducing itemized deductions by 2/37 of the lesser of your itemized deductions or your income above the 37% bracket threshold.
If you don’t itemize, you can deduct up to $ 2,000 (married filing jointly) to public charities, but not to donor-advised funds.
The 60%-of-AGI limit for cash gifts is now permanent.
With the new floor, it may pay to bunch two years of giving into one.

Other temporary OBBBA deductions. For 2025 through 2028, OBBBA also added deductions for seniors 65 and older, qualified overtime pay, and car-loan interest on new U.S.-assembled vehicles (IRS). Most profitable traders will phase out of these, but they may matter in a low-income year.

Disaster relief. If you live in a federally declared disaster area, watch for IRS deadline extensions.

Tax Forms Traders Should Know

Form: what it’s for.
Form 1099-B: your broker’s report of sales. It’s a starting point, not a complete wash-sale picture.
Form 8949 and Schedule D: capital gains and losses, including wash-sale adjustments.
Form 4797: section 475 ordinary trading gains and losses.
Form 6781: section 1256 contracts, including the three-year loss carryback election.
Form 1045 or 1040-X: claiming a refund from a Section 1256 loss carryback.
Schedule C: tTS business expenses for sole proprietors.
Form 3115: adopting Section 475 mark-to-market accounting, including the Section 481(a) adjustment.
Form 4868: individual extension. You can attach a Section 475 election statement to it.
Form 2210: estimated tax penalty, including the annualized method on Schedule AI.

My December 31 Checklist

Review your year: Total your realized gains and losses and any Section 475 income or loss, and check whether you’re near the EBL limit ($256,000 single / $512,000 joint).
Consider a Roth conversion: In a loss year or a low-income year, convert before December 31.
Check your QBI position: Project your taxable income against the phase-out range (276,750 single, 553,500 joint).
Use the 0% bracket: In a low-income year, harvest long-term gains in your investment accounts up to the 0% threshold ($49,450 single, $98,900 joint).
Harvest losses and clean up wash sales: Run your trades through a trade accounting program in early December, since your 1099-B won’t arrive until mid-February or later. Check all your accounts, including your IRAs and your spouse’s accounts. Close replacement positions bought in the 30 days before each loss sale, and stay out for 30 days after it (through January 30, 2027, for December 31 sales).
Review Section 1256 losses: If you have a net futures loss, ask your tax advisor to model the three-year carryback. You elect it on Form 6781 and claim the refund on Form 1045 or 1040-X.
Separate investments: If you have Section 475, make sure your investment positions are identified in your records, ideally in separate accounts.
Fix your estimates: Check federal and state estimated tax payments. If you’re behind, increase your withholding before December 31. The federal penalty rate is 7% for the fourth quarter.
Keep trading: Maintain your TTS-level activity through the final trading day.
Plan your 2027 Section 475 election: As a sole proprietor, elect by April 15, 2027. First, consider your capital-loss carryovers, which can offset only $3,000 a year of Section 475 ordinary income per year.
Get equipment set up: Make sure new hardware is delivered and running by December 31.
Pay business bills: Pay your TTS-related CPA, software, and data fees by year-end.
Check your state rules: Confirm how your state treats these moves, including estimated taxes, depreciation, and retirement and charitable deductions.
Talk to your tax advisor: Meet in December, while you can still make these moves.

Coming Next: Part 2, Year-End Planning for Trading Entities

If you trade through an S-corp or LLC, or you’re thinking about forming one for 2027, Part 2 is for you. I’ll cover:

New entity for 2027: how to set one up so it can make its own Section 475 election by March 16, 2027.
Officer compensation: my long-held unearned-income view on reasonable compensation, and what I recommend today for profitable and losing years.
Health insurance: the S-corp health insurance deduction, and why it depends on officer wages.
Solo 401(k): maximizing your 2026 contributions through December payroll.
Accountable plans: reimbursing your expenses before year-end.
PTET: using a pass-through entity tax election to work around the $40,400 SALT cap.

Entity owners have firm December 31 deadlines for payroll, reimbursements, and PTET payments, so watch for Part 2 soon.

For more on trader tax status, Section 475, wash sales, and entity planning, see Green’s Trader Tax Guide and the tax center at GreenTraderTax.com.

This post is general information for educational purposes, not tax, legal, or investment advice. Your situation may differ, so consult a qualified tax professional before acting.