Day Trader expenses offset capital gain

As a day trader you are in the business of buying and selling securities.  Because you are in a business, the transactions on your 1099-B represent your business income or loss and as such, those gains/losses are reported on a Schedule C, line 1, Gross receipts or sales.  

Because it appears you have a business, you will likely be using TurboTax Self-Employed or TurboTax Home & Business, and both of those applications have sections where you will enter your business expenses, such as your office rent.

Whether you choose to upload your 1099-B will probably depend in large part on whether any of the transactions contained therein are not part of your day trading business.  If any transactions on your 1099-B are not part of your day trading business, then you can enter them manually (this may be possible if you only a few transactions) or you can upload your 1099-B, and then delete those transactions that are not part of your day trading business.  This may sound a bit confusing, but we don't know whether you have a separate 1099-B for your day trading business and another 1099-B for your non-day trading business, or if you have just one 1099-B which contains all of your trades.  

As noted above, if all of your transactions on your 1099-B were effected as part of your day trading business, then you will just need your total profit/loss number and that will be entered on your Schedule C as your gross receipt or sales number.  Because these transactions are now part of your business, (capital gain/loss tax no longer applies) you will pay income tax on any business profit, as well as self-employment tax (Social Security and Medicare).  TurboTax will calculate the amount you can deduct from your return based on the amount of self-employment taxes you are required to pay.  

@stech

We need to amend the prior response to include the following information obtained from the IRS website which relates to the Section 475 election and it also relates to how gains and losses from trading should be characterized.

"Traders can choose to use the mark-to-market rules, investors can't. If a trader doesn't make a valid mark-to-market election under section 475(f), then he or she must treat the gains and losses from sales of securities as capital gains and losses and report the sales on Schedule D (Form 1040), Capital Gains and Losses and on Form 8949, Sales and Other Dispositions of Capital Assets as appropriate. When reporting on Schedule D, both the limitations on capital losses and the wash sales rules continue to apply. However, if a trader makes a timely mark-to-market election, then he or she can treat the gains and losses from sales of securities as ordinary gains and losses (except for securities held for investment - see above) that must be reported on Part II of Form 4797, Sales of Business Property. Neither the limitations on capital losses nor the wash sale rules apply to traders using the mark-to-market method of accounting."

Below is the link to the IRS webpage from which the above information was obtained. 

Traders in Securities

[Edited 02/23/22|3:41pm PST]

One way to offset expenses from capital gains is to create a dummy brokerage account called "Transfer to Schedule C", something like this

Then in Schedule C, enter 40000 as Gross Receipts and Sales. If your expenses is $30K (rent, equipment, advisory, your salary and benefit, payroll tax, etc), your business will have a net profit of $10K.

This way, the $60K will be taxed as capital gain, while the $10K as ordinary income. Without this "Dummy brokerage", you will have 0 gross receipts in Schedule C, and a net loss for the business, sounds pretty weird.