Section 475(f) is a special IRS provision commonly called "trader tax status". This election allows business treatment of gains and losses for qualified active traders. There are many benefits to this election, but there are specific requirements as well.

For proper tax reporting:

  1. Timely election must be made, usually by April 15th of the first year elected by a qualified trader.
  2. A Section 481 adjustment for change of accounting method must be reported with the first tax year elected.
  3. Year end open positions must be marked to market. This requires closing each position at fair market price, calculating realized gains/losses, then re-opening into the next tax year.
  4. Gains and losses are reported on IRS Form 4797 with a detail of all trades included. A list of securities marked-to-market at the end of the tax year must also be attached.