Form 3115

[MGC94]

Client emailed me a link regarding form 3115. 

I believe this accurately describes what I do with the td ameritrade brokerage account.

https://tickertape.tdameritrade.com/personal-finance/taxes-mark-to-market-15336

I was under the impression it was always that way as it's obvious I qualify and fit the description.

I want to make sure I'm not taxed for things I did not receive. I lost substantial amounts of money in the last month of 2021 which put my as a negative for the year yet they show $153k in gains due to the was rule.

What is also attached are my stock losses. As you know from doing my taxes, I day trade as a source of income. Some years are tough. My 1098 shows that I made $153k. I actually lost money in 2021 but the "wash rule" is not allowing the losses. I lost thousands in the last month of trading. I never saw a dollar, never took any money out of the account. I am not sure how they can tax me on money I never had.

I’m told I have make a Mark to Market election(Sec475) so the IRS classifies me the correct way so the wash rule does not apply. I was under the impression since the brokerage classifies me as a day trader, that was understood. I am not sure what to do here but I did not expect to show a gain so significant-when i didn’t see a dime! Perhaps we can connect on what is correct?

This is the info he gave me. Can someone enlighten me? Thank you 

[Norman2001]

If you haven't already done so, read https://www.irs.gov/taxtopics/tc429.  The brokerage firm does not "decide" who's a trader vs. investor.  If your client wants to be classified as a trader, he should have made the election in tax year 2020 or earlier.  Maybe he did?

From what I've read, the IRS watches this fairly closely and often challenges the trader classification, especially if the person is losing money.  Investors try to get around the $3000/year capital loss limitation by wanting to be classified as traders.  

I don't have any clients that are traders, so I don't have any first-hand experience.  

[BobKamman]

If I had $153K to lose I think I would learn the tax law about day-trading before the year started, not after it ended.  

It wasn't clear because of the typo that what is involved here is the "wash sale" rule.  Live and learn.  

[MGC94]

The 1099-B reads

Proceeds 15,537,248.00. Cost 17,463,846.00. Wash 2,079,619.88. (Short term)

Proceeds 72,366.00. Cost 74,815.85. Wash 1,301.42. (Short term) 

Proceeds 14,485.00. Cost 20,098.52. Wash 5,660.54 (Long term)

All basis reported to the IRS. 

I put it on schedule D per usual. He has been my client for 5 years. One year he had a loss. Based off of a bad year and this $153,000 plus year he still has an $80,000 loss. Transferred to page Line 7 on 1040 is still -$3,000. 

[MGC94]

The 1099-B reads

Proceeds 15,537,248.00. Cost 17,463,846.00. Wash 2,079,619.88. (Short term)

Proceeds 72,366.00. Cost 74,815.85. Wash 1,301.42. (Short term) 

Proceeds 14,485.00. Cost 20,098.52. Wash 5,660.54 (Long term)

All basis reported to the IRS. 

I put it on schedule D per usual. He has been my client for 5 years. One year he had a loss. Based off of a bad year and this $153,000 plus year he still has an $80,000 loss. Transferred to page Line 7 on 1040 is still -$3,000. 

[Norman2001]

"Transferred to page Line 7 on 1040 is still -$3,000." 

Conway, I'm not following you. Are you surprised that the loss is limited to $3000.

[MGC94]

No I am not surprised. Lol you guys are so HARSH.  

[Norman2001]

Sorry, I wasn't trying to be harsh. I just didn't know why you said the loss was still 3000.