Booyah Breakdown: Taxes for Traders II

Your gains and losses will go on Schedule D, and you'll be subject to the capital-gains tax rates. On the plus side, any excess losses can be carried forward to future years idnefinitely.

Can You Be a Trader and Investor?

You can be both trader and investor -- trading for a living and having investment accounts on the side. If so, it is imperative that you keep the accounts separate. The mark-to-market election will apply only to trades associated with your trading business.

An easy way to keep your accounts independent is to set up separate email accounts. When you buy a security for your investment account, send yourself an email. That way it's time-stamped. Identify in the email that the security will be held for investment purposes under section 475(f).

By doing this, you will have noted that it's part of your investment portfolio, not as part of your trading business. Now you've got objective evidence that you will be excluding the shares from the mark-to-market election at year-end. Keep in mind that you must do this before the close of the day of purchase.

Whew! Nothing like a little light weekend reading.

If you're a total glutton for punishment, check out the IRS Publication 550 -- Investment Income and Expenses and GreenTrader.

Now get back to work and trade!

Next in the tax series: A Reason to Procrastinate.