As a trader (including day traders), you report all of your transactions on Form 8949 Sales and Other Dispositions of Capital Assets. If you are in the business of buying and selling securities for your own account, you may also file a Federal Schedule C (Form 1040) Profit or Loss From Business to report any expense items.
There is no election that needs to be made for a Trader reporting sales on the Form 8949. You would report them on the Schedule D (Form 1040) Capital Gains and Losses and will be subject to the $3,000 capital loss limit. Some traders make what is called a "Mark-To-Market" election in order to deduct the full amount of the loss rather than $3,000 on your return. However, the election cannot be changed in a future year without IRS permission. If the election is made, any gains in a future year are required to be reported as ordinary income not benefiting from the lower capital gains tax rates. Note that this election, if made, is not good until the following tax year.
If you are a trader entering your transactions on the Form 8949, enter them under the Investment Income topic in the Federal Q&A.
If you have or ever do make the "Mark-To-Market" election, then each transaction is to be reported in Part II of the Federal Form 4797 Sales of Business Property. If you are interested in making the Mark-To-Market election, you should review IRS Instructions for Schedule D Capital Gains and Losses, under the sections titled "Traders in Securities" on page D-5 and "Mark-To-Market Election for Traders" on page D-6.
As mentioned previously, you will need to complete Form 4797 and check the appropriate box on the form to report the transaction in Part II of the Form 4797. Please see the following Note below regarding the number of transactions supported by TaxAct.
To enter information to be reported on Form 4797:
- From within your TaxAct return (Online or Desktop), click Federal (on smaller devices, click in the top left corner of your screen, then click Federal).
- Click the Investment Income dropdown, click the Gain or loss on the sale of investments dropdown, then click Ordinary gain or loss (Form 4797).
- Click + Add Sale of Business Property to create a new copy of the form or click Edit to edit a form already created (desktop program: click Review instead of Edit).
- Continue with the interview process to enter your information.
When entering Mark-to-Market transactions, you do not need to designate the type of property.
Note. TaxAct currently allows up to 40 transactions for Form 4797, Part II for e-filing. If you have more than 40 transactions, you can still use TaxAct to enter the data, but would need to file a paper return. Enter a Sale of Business Property summary in the program with the description of "See Attached" and the totals. Attach a supporting document or spreadsheet to the return that would support all the transactions.
Additional Information
- Topic No. 429 Traders in Securities (Information for Form 1040 or 1040-SR Filers)
- Instructions for Form 4797 Sales of Business Property (Also Involuntary Conversions and Recapture Amounts Under Sections 179 and 280F(b)(2))
- Publication 550 Investment Income and Expenses (Including Capital Gains and Losses)
Note that any link in the information above is updated each year automatically and will take you to the most recent version of the webpage or document at the time it is accessed.
