475(f) Mark to Market Election Questions

Technical topics regarding tax preparation.
#1
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Had a new referral call me today. Has a fairly straight forward situation outside of Trading S-Corp he started in 2022. Here's the fact pattern:

-The client opened a brand new LLC in 2022 and elected S Corporation status on the LLC beginning 1/1/22
-Throughout 2022, the client has invested $500,000 of his own savings into a TD Ameritrade account, no debt.
-The client is aware of the levels of activity and requirements to be treated as a trader vs. dealer and has confirmed that he has traded enough to qualify for the trader treatment. Expects around 45K return this year.
-The client has placed in their books and records the statement to elect 475(f) treatment and we will attach this election to their 2022 1120-S

My questions:

1) This is the first MtM election I have dealt with. The election was placed in their books and records before the client began trading activities. Due to that they have no deferred gains or losses at the time of the election. However, they have to come up find out the FMV for all securities held and not sold on the last day of the year and treat it as having been sold and then reacquired the following year.

- This means there is a book to tax difference on the return for the securities still held on 12/31, correct?

- The gain or losses recognized on year 1 for securities held and not sold get compared to the gains and losses recognized at the end of year 2 for securities held and not sold and there would be a favorable or unfavorable book to tax adjustment for the difference, correct?

2) Should they notify the custodian (in this case TD Ameritrade) of this election? My thought was the due to wash sales, etc.

3) Can we summarize the sales on the 4797 like we can for 8949 transactions?

Thanks in advance!
 

#2
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1. Stock basis stepped up/down by MTM ordinary income/loss taken on return.
2. Yes TD has helpful trader tools.
3. Suggest trade accounting sw to generate 4797, e.g. see https://greentradertax.com/services/accounting/
 

#3
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TAXMASTER wrote:1. Stock basis stepped up/down by MTM ordinary income/loss taken on return.
2. Yes TD has helpful trader tools.
3. Suggest trade accounting sw to generate 4797, e.g. see https://greentradertax.com/services/accounting/


#1) Again assuming that this is ran through as a m-1 adjustment?

#2) Thank you I'll let him know

#3) So essentially the sales are like crypto where each lot that is sold has it's own line item? As in, you can put see attachment on the 4797 and if there are a 1,000 sales then there would be 1,000 lines of sale data that tie back to the summary numbers listed on the 4797?
 

#4
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Agree, seems like you have it covered.
 


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