Key Tax Deadline for Traders Comes Earlier Than Expected

Traders face two important tax deadlines this April 17. One, of course, is for filing their 1999 tax returns. The other is to decide whether to mark to market their trades for the 2000 tax year.

It's unusual for individuals to have to make such an important tax decision so far in advance, but the Internal Revenue Service has ruled that the election must be made by April 15 (or the first business day thereafter) on your previous year's tax return. So if you didn't elect to mark to market your trades when you filed your 1998 tax return, you can't do it on your 1999 return.

What is mark to market? The Taxpayers' Relief Act of 1997 gave traders the option of valuing all their securities as if they were sold for their fair market value on the last business day of the year. It's only a paper transaction, but it can be a key tax perk because it allows traders the option of taking an unlimited amount of losses, which can be used to offset any income.

Whether it's a good move or a bad move for a trader depends on how profitable the year was. That's why the IRS requires such an early declaration. It doesn't want to give traders the freedom to calculate gains and losses under both scenarios and then pick the more favorable treatment at the last minute. Businesses are not allowed to make these kind of ad-hoc decisions, and the IRS considers trading to be a business. ...