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I am a day trader. How, exactly, do I report my investment income ($50,000 in losses, actually) into TurboTax, so that I can capitalize on the full range of deductions?

Forum|Forum|6 years ago
May 31, 2019
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I have used TurboTax for at least 10-20 years and it has been great. But now that I am a day trader who has suffered significant losses day trading, TurboTax seems to be failing me. Usually I just answer its questions and TurboTax leads me to the right answers, but not, apparently, when it comes to day trading. I need to know how, exactly, to enter my investment income into TurboTax so that it gets included as a business expense and is fully deductible.

I read elsewhere, in a separate TurboTax Forum, that I should report my trading gains and losses on Schedule D, just as I would if I were filing as an investor. My losses from the Schedule D then should be included on my Schedule C before transferring over to Line 12 of Form 1040. But what is not clear to me is whether Turbo Tax will make all of these connections. I am concerned that it will not. I am not used to doing things manually on TurboTax. Instead, I am used to simply answering its questions and being led to the right answers. Will that happen here? Or do I have to do things manually?

Also, as mentioned, I lost about $50,000 last year day trading, and my tax liability from other (non-day-trading) income is far less than $50,000. So does any of this $50,000 that I can't deduct in 2014 carry over to future years? And will TurboTax ensure that it carries over? Or do I have to do things manually because my situation is unusual or uncommon?

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Best answer by bwa

My losses from the Schedule D then should be included on my Schedule C before transferring over to Line 12 of Form 1040.

That's not correct. You're confusing day trading with a Mark to Market election. With day trading your gains and losses still go on Schedule D but your business expenses such as margin interest, computer costs allocatable to the business, etc. go on Schedule C. In effect your losses will be on Schedule D (limited to $3,000 like everyone else) but your day trading expenses will go on Schedule C (unlike others classified as investors.)

It's too late to make a Mark to Market election for 2014 (and even for 2015.) The last day to make the election for 2015 was on April 15, 2015. Consequently, the earliest year you can make it for is next year - 2016.

The Fairmark Press site has an explanation of this:

· http://www.fairmark.com/traders/mtmelec1.htm and

· http://www.fairmark.com/traders/mtmelec2.htm

So does any of this $50,000 that I can't deduct in 2014 carry over to future years?

As noted, the $50,000 isn't deductible this year. As a day trader without a Mark to Market election your losses are limited to $3,000 this year. The balance is carried over as a capital loss, not a business loss.

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johnnyacre

Employee

Mark, you sound like you're in way over your head. $50,000 in losses in a single year is a lot for anyone, especially an individual trading what I assume is your own capital. Frankly, trading your own money without doing much research into what your capital gains/losses would end up costing you come tax time was a terrible idea. I'd recommend you do some paper trading for about a year and read some serious books on price action. I'll never understand why prospective traders start out by using their own money, which should not even be attempted until you can complete a minimum of 100 trades with paper money and have the dollar value of your profits outweigh the dollar value of your losses 60-40 at the conclusion of those trades. What are you even doing trading, man? Get a real education on trading, and get a real accountant, until then stop trading real money. At your pace, you may as well use $100 bills as kindleing for your weekend babeques.

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CloakedOwl

I find it interesting that he is asking for tax advice and you give him trading advice. I would guess that you know nothing about his life or financial situation to judge what a lot of money is to someone. Maybe next time just try to answer the question and keep your unsolicited advice to yourself.

fanfare

Employee

you, and I , are commenting on a two year old post. Oops.

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ptkershaw

Employee

$50,000 may be a lot to Johnny Acre, but not to Mark (or to me.) It might just be a part of the learning process and that might be a very small portion of his risk capital. In consultancy costs (to a company like MTI or OTA), office buildout, high speed internet and computer equipment your startup expenses could easily top $50,000 before you place your first live trade.

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-taxpro1

Employee

spouses with different residence state

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bwaAnswer

Employee

My losses from the Schedule D then should be included on my Schedule C before transferring over to Line 12 of Form 1040.

That's not correct. You're confusing day trading with a Mark to Market election. With day trading your gains and losses still go on Schedule D but your business expenses such as margin interest, computer costs allocatable to the business, etc. go on Schedule C. In effect your losses will be on Schedule D (limited to $3,000 like everyone else) but your day trading expenses will go on Schedule C (unlike others classified as investors.)

It's too late to make a Mark to Market election for 2014 (and even for 2015.) The last day to make the election for 2015 was on April 15, 2015. Consequently, the earliest year you can make it for is next year - 2016.

The Fairmark Press site has an explanation of this:

· http://www.fairmark.com/traders/mtmelec1.htm and

· http://www.fairmark.com/traders/mtmelec2.htm

So does any of this $50,000 that I can't deduct in 2014 carry over to future years?

As noted, the $50,000 isn't deductible this year. As a day trader without a Mark to Market election your losses are limited to $3,000 this year. The balance is carried over as a capital loss, not a business loss.

M

Mark743Author

Employee

Thanks; I appreciate your help, but am still confused. What is mark to market election? I wasn't even aware of that. All I asked is how, as a day trader, I am supposed to enter my taxes into TurboTax. It's confusing because there are two different parts of my return, which TurboTax doesn't seem to connect: the personal side, where my trading wins/losses are recorded, and the business side, where my expenses are recorded. Please advise as to the technical nuts and bolts of using TurboTax when reporting income as a day trader. As I said in my initial note, I am used to simply answering the questions and being prompted to the right result by TurboTax. However, I do not have confidence that that will happen now that I am a day trader. Thanks.

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bwa

Employee

your answers not really answering to my questions above. Simply put, can I expense subscriptions, equipment and etc on Schedule C even if I don't elect M2

See this part of my post above: With day trading your gains and losses still go on Schedule D but your business expenses such as margin interest, computer costs allocatable to the business, etc. go on Schedule C. In effect your losses will be on Schedule D (limited to $3,000 like everyone else) but your day trading expenses will go on Schedule C (unlike others classified as investors.)

The underlined portions would include subscriptions and equipment depreciation.

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shunchang

Employee

Hi again bwa and thanks for fast feedback! ok with gains and losses on Schedule D. Since I don't have a business entity, I can still expense and deduct equipment and etc on Schedule C? Also, If I do elect M2M for 2016, can the losses from prior years including last year to be fully carryover for 2016 (if I am profitable in 2016. And, by how much can I carryover/deduct?)
Thanks again!

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bwa

Employee

I haven't registered sole proprietorship...I don't have a fiticious business name. extensive day trading on daily basis automatically puts me in as sole proprietorship?

No registration is necessary nor due you need an assumed name to be a sole proprietorship. For earned income, you are usually either an employee (and receive a Form W-2) or are self-employed (i.e., own a business) and receive a Form 1099. While your activity may not seem to rise to the level of a business, the IRS would consider that it does.

For a simple business such as yours, just use your name as the business name, and your social security number as the business EIN.

What can I do to write off carry over capital losses completely? At first, I thought M2M election will take care of it.

The only way is to have offsetting capital gains. MTM is not a panacea for prior year losses.

Assuming M2M election is done for 2016 year, can I write off 2015 day trading losses?

Sorry, but no. The election only applies to years that the election is for and subsequent years. 2015 losses are still subject to the normal capital loss rules because there was no MTM election for that year.

If I end up with capital losses again this year, in 2017, can I fully write off 2016 capital losses in day trading?

If you elect day trading in 2016 (by April 15) you can write off losses in 2016 on your 2016 tax return. On the other hand, if I was planning on having losses I would get out of day trading (sorry for the editorial comment.)

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shunchang

Employee

Thanks again. so much clearer now. But still need your help to clarify for the last question.

After M2M election, capital losses (day trading) in 2016 can be carryover to 2017 and fully offset if 2017 is a profitable year?

Once M2M election is made for 2016, gains and losses will be converted to as ordinary income. Therefore, carryover capital losses from prior years cannot be offset?