Tax Guide for Traders

People who do a lot of short-term trading may qualify as traders under the tax law.

If you meet the relevant tests, you’ll receive somewhat different — and more favorable — tax treatment. This guide will help you decide whether you qualify as a trader, and understand the tax rules that apply if you meet the tests.

To learn more: Our book, Capital Gain, Minimal Taxes, includes six chapters dealing specifically with income taxation of traders.

Capital Gains, Minimal Taxes: The Essential Guide for Investors and Traders

Introduction to Trader Status
A one-page overview of our Tax Guide for Traders.

Benefits of Trader Status
Here’s what you gain if you qualify as a trader.

The Disturbing State of the Law
There’s no clear definition of trader. And that’s just part of the problem.

Definition of “Trader”
To be a trader you have to meet the two requirements described on this page.

Filing as a Trader
What does a trader’s tax return look like?

IRS Guidance on Trader Taxation
The IRS has produced a limited amount of (mostly accurate) guidance on trader taxation.

Mark-to-Market Accounting
If you’re a trader, you should consider whether you can benefit from the mark-to-market election.

Identifying Investment Holdings
Before you make the mark-to-market election, you need to think about identifying investment holdings.

Making the Mark-to-Market Election (part 1)
There are two parts to making the election. This is the first part.

Making the Mark-to-Market Election (part 2)
Your election may not be considered valid if you fail to follow through with the second part of the election.

Section 481(a) Adjustment
An explanation of the adjustment you have to make when you switch to mark-to-market accounting.

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