Booyah Breakdown: Taxes for Traders II

Neither is there a box to check that you are electing to mark to market your securities positions. You will have to indicate that election in the way you fill out your Schedules C and D. First, report all your transactions on Schedule D. That way your gross proceeds from sales tie into the Forms 1099-B that you'll get in the mail from your broker come tax time.

Then work through the form until you get to line 16 (total net gain or loss). At this point, you want to make the balance on Schedule D zero so you can transfer it to line 1 (gross receipts) on Schedule C.

How? If you have, let's say, a gain of $10,000, then under line 16, show that amount as a negative number so your Schedule D balance is now zero. (If you have a loss, show the amount under line 15 as a positive number.) Then write "Section 475(f) election to Schedule C" next to the negative amount.

From here, report your gain or loss on line 1 of Schedule C and write "Section 475(f) election from Schedule D" on the line before the amount.

Normally, you must pay self-employment tax on all income on Schedule C. But in this case, you don't. It's an additional perk of having trader status. (See Section 1402(a)(3) for more details.)