Do you know the tax benefits and liabilities of the mark-to-market election?

Trader Not Electing Mark-to-Market Advantages:

1. Can take trading expenses on Schedule C
2. No self-employment tax 
3. All gains and losses are capital in nature

Disadvantages:

• Excessive losses limited to $3000 above net capital gains
• Wash Sale Rules Apply
• Constructive Sales under Section 1259 apply

Trader Electing Mark-to-Market

Advantages:

1. Can take trading expenses on Schedule C 
2. Use Form 4797 to match w/1099's
3. All gains and losses are ordinary in nature
4. No self-employment tax
5. No wash sale rules
6. Can take unlimited ordinary losses in excess of $3000 capital loss limit
7. Constructive sales rules do not apply

Disadvantage:

• On last day of the year, mark-to-market entire trading portfolio (if holding positions) and book all gains/losses on return