Related publications: Publication 550: Investment Income and Expenses (2006) (Read page 72 regarding Special Rules for Traders in Securities); 2006 instructions for Form 4797 (IRS publications) (Read page 2 regarding Traders Who Made a Mark-To-Market Election);


If you are qualified as a trader in securities in the business of buying and selling securities for your own account, you should make the mark-to-market election to avoid wash sale rules. As a result, you should report all gains and losses from trading as ordinary gains and losses in part II of Form 4797, instead of as capital gains and losses on Schedule D. Interest expnese and other investment expenses that an investor would deduct on Schedule A are deducted by a trader on Schedule C, Profit or Loss From Business, if the expenses are from the trading business. Gains and losses from selling securities as part of a trading business are not subject to self-employment tax. This is true whether the election is made or not.