For active traders
Trader tax status, from a CPA who trades.
Day traders and options traders are taxed under rules written for investors. Trader tax status, the §475(f) mark-to-market election, wash sales, and Section 1256 contracts each change the answer, and most of the decisions carry deadlines that arrive before the year is half over. Our founder trades SPX and SPY options in his own account, so these are questions we have lived with, not just read about.
What we plan for
Six questions every active trader’s return turns on.
Each one has a right answer for your facts, and several have a deadline. We answer them in writing with the numbers attached.
“I trade SPX and SPY options in my own account, so I have lived the questions traders bring us: why a 1099-B shows wash-sale adjustments that have nothing to do with what you actually made, why SPX and SPY options fall under different tax rules, and why the §475 election has to be decided in April — before you know what kind of year it will be.”
Likely a fit if you
- Trade most days the market is open, with holding periods measured in days, not months
- Have a 1099-B that runs to dozens of pages, or a wash-sale number you cannot explain
- Want trading income to fund a retirement plan and cover deductible health insurance
- Are weighing the §475 election, a trading entity, or a move to Florida
- Are in your first year or two and have losses you would rather not carry forward at $3,000 a year
Bring last year’s 1099-B. You will know on the first call whether trader status is realistic.
New traders
Starting this year? The learning-year loss does not have to become a $3,000-a-year carryforward.
Most first years are learning years, and most new traders find out in April that the capital loss limit traps everything above $3,000 for years. With the right setup from the first trade, a learning-year loss can instead be an ordinary loss that offsets wages and other income in the same year. The catch is that every piece has to be in place before the loss is booked.
Qualify from the first trade
Trader tax status is earned by the trading, not by paperwork: most market days, holding periods in days rather than months, real hours, and the intent to make a living at it. It can apply to part of a year, so someone who starts in June can qualify from June — if the log of trades, hours, and holding periods supports it.
Elect §475 through a new entity
An individual’s §475 election for this year had to be filed by April 15, which is usually before a new trader starts. A new LLC taxed as a partnership or an S corporation is a new taxpayer and can elect within 75 days of formation, so every trade inside the entity is mark-to-market from day one.
Deduct the loss this year, not over decades
With trader status and the election in place, a first-year loss is ordinary: it flows through to your return and offsets W-2 wages and other income in the same year, with no $3,000 cap. A loss larger than your other income becomes a net operating loss carried forward — not a capital loss waiting on future gains.
Timing is the whole game. Losses already booked in a personal account before the entity exists stay capital, and an entity does not create trader status on its own — the trading has to qualify. If the window for this year has passed, the fallback is an individual §475 election for next year, filed by April 15. Courses and coaching paid for before you begin may be treated as start-up costs once the trading business is underway.
How it works
Three steps from first call to a working plan.
Discovery
A review of last year’s 1099-B and return, how you actually trade, and which elections are still open. You will know from the first conversation whether trader status is realistic and whether planning is likely to pay for itself.
Written strategy
A plan that lists each recommended step — status, election, entity, estimates — with what it requires from you, its deadline, and its projected tax effect in dollars.
Implementation and check-ins
We file the election and Form 3115, set up the entity and plan if they make sense, check in each quarter as the year develops, and prepare the return with the 1099-B reconciled to what actually happened.
Questions
Before you book.
How much do I need to trade to qualify for trader tax status?
There is no bright-line number. The courts look at frequency (trading most days the market is open), continuity across the year, holding periods measured in days rather than months, the hours spent, and whether you are seeking to profit from short-term swings rather than dividends and appreciation. Taxpayers have lost with hundreds of trades a year when the activity was sporadic, and won with daily activity and short holds. We assess your actual records against that case law and tell you plainly where you stand.
When do I have to make the §475 election?
For an existing taxpayer, by April 15 of the year you want it to apply to: the election statement goes with the prior year’s return or extension request, and Form 3115 follows with the return for the election year. A new entity gets 75 days from formation (two months and 15 days, strictly). Missing the date means waiting a year, which is why we model the election in the first quarter.
Can I deduct my first-year losses if I am still learning?
Only within the capital-loss rules unless you qualify for trader status and make the §475 election in time. With the election, trading losses are ordinary and not capped at $3,000; without it, they carry forward at $3,000 a year against other income. For a trader starting mid-year, a new entity that elects within 75 days of formation is usually the path. The first year is also when trader status is hardest to prove, so records of time, frequency, and intent matter from day one.
Do I owe self-employment tax on trading gains?
No. Trading gains, even with trader tax status and the §475 election, are not self-employment income — which also means they do not count as earned income for a retirement plan or the self-employed health insurance deduction on their own. The 3.8% net investment income tax can still apply. A trading entity that pays a management fee or salary is the usual way to create earned income for those purposes, and we model whether it is worth it at your level of activity.
Get started
Book a free 30-minute consultation.
A focused conversation about how you trade, what last year’s 1099-B says, which elections are still open, and whether a planning engagement would pay for itself. Pick any open time on the calendar.
What happens on the call
- 1You describe your situation.Your income picture, what changed this year, and what you want to happen next. About ten minutes.
- 2You get a first read.Which strategies likely apply to you, which do not, and roughly what they could be worth.
- 3You leave with a clear answer.Whether planning would pay for itself, what an engagement costs, and what happens next. No pressure either way, and no fee for the call.
- Who you'll meet: Vince Mongio, CPA, EA, CIA, CFE, MACC. The founder takes every call and reviews every plan personally.
- What to bring: Nothing beyond your most recent return, if you have it handy.
- Where: By video or phone. Based in Miami, working with clients nationwide.
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