Believe me, as a Trader you DON’T want to do your own taxes!

Every year at this time, many Americans sit down with a strong cup of coffee, a yellow No. 2 pencil and a legal pad and try to make sense of that giant jigsaw puzzle known as the federal income tax return.

Tax time is a little like the anti-holidays, where tax forms with forgettable names and numbers suddenly replace those visions of sugar plums that were dancing in our heads just a few weeks ago.

Below are some of the significant tax forms in a typical trader’s federal tax return. We suggest that you look at them, become familiar with what they do – and then forget them.

Why? Because you’re a trader, not an accountant.

You can’t read the results of your blood test, can you? Or diagnose engine trouble? Or figure out what the heck dry cleaning is, right?

So why would you attempt to do your own taxes – or let just any accountant attempt to, given the unique rules and regulation that govern trader taxation?

That’s our job. As traders and accountants, Traders Accounting’s tax professionals specialize in helping you prepare an audit-proof tax return that trims your taxes to the absolute minimum.

What’s more, our tax experts keep on saving you money by staying current on every tax law change – especially those that could pose a threat to your trader tax status or offer opportunities for even greater tax savings.

Here are the trader’s most important tax forms. Call Traders Accounting today to keep them from dancing in your head!

Mark-to-Market Statement of Intent

For most traders, switching to the mark-to-market (MTM) accounting method is the single most tax-efficient move they will ever make.

Why? Because it changes the tax status of your earnings from capital gains/losses to ordinary income/losses, thereby avoiding the $3,000 capital loss limitation and the wash sale rule.

To elect mark-to-market, you must enclose a statement of intent with your tax return (or extension request) by April 15th the year prior to beginning MTM. That means that to use MTM on this year’s return, you would have to have elected it April 15th of last year.

The IRS makes one exception: If you file as a new business entity (partnership, limited liability company or C corporation), you have two months from opening to note your accounting preference in your meeting minutes. You need not notify the IRS until you file Form 3115 (below).

Form 3115: Application for Change in Accounting Methods

Your first year using MTM, you must submit IRS Form 3115 (Application for Change in Accounting Methods) with your tax return. This form contains a one-time adjustment, Section 481(a), which captures duplications and omissions resulting from the change in accounting methods.

If the adjustment is $25,000 or less, you may deduct the full amount on your return; if it exceeds $25,000, you may deduct 25% each year for the next four years.

Schedule C: Profit or Loss from Business

If you file as a sole proprietor and do not elect mark-to-market accounting, you will report your expenses on Schedule C (Profit or Loss from Business) and your trades on Schedule D (Capital Gains and Losses), a disconnect the IRS considers suspect.

One way to avoid flagging the taxman is to trade under a formal business entity (limited partnership, LLC or C corporation). Tax treatment of business entities is both more favorable and more predictable than that afforded sole proprietors.

Schedule D: Capital Gains and Losses

Traders in stocks, options and single-stock futures who do not elect mark-to-market accounting must report their trading activity on Schedule D (Capital Gains and Losses).

Schedule D contains two parts: short-term capital gains/losses for holdings of less than one year, and long-term capital gains/losses for holdings of more than one year. This also is the form on which wash sale adjustments are recorded.

Because trading frequently involves the buying and selling of unequal shares, calculations of gain or loss must be broken down into the smallest number of shares on either the buy or sell side. This can be a time-consuming and tedious process.

If you’re an active trader, filling out Schedule D can be an arduous task without the assistance of an experienced trader tax professional. Traders Accounting can help simplify your record keeping and streamline your Schedule D preparation.

Form 6781: Gains and Losses from Section 1256 Contracts and Straddles

If you trade in commodities – including such Section 1256 contracts as futures, foreign exchange and nonequity options – you must report your trading activity on Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles). You enter the gross amount of your Section 1256 proceeds from your 1099 on Part 1, Line 2 (Net Gain or Loss) of Section 1 (Contracts Marked to Market).

The IRS generously allows commodities traders to split their Schedule D gains and losses, 60% long-term and 40% short-term. This is such an attractive deal that many commodities traders choose not to elect mark-to-market accounting, thereby retaining their profitable 60/40 split on gains. An added plus: losses on Form 6781 may be carried back three years against gains.

Form 4797: Sales of Business Property

Traders in stocks, options and single-stock futures who elect mark-to-market accounting report their trading activity on Form 4797 (Sales of Business Property (Also Involuntary Conversions and Recapture Amounts Under Sections 179 and 280F(b)(2)).

Under the mark-to-market accounting method, all securities that you hold at the end of the year are treated as if they were sold and repurchased on the last day of the year; they are “marked to market” for tax purposes. All trading activity should be entered under Section II of Form 4797 (Ordinary Gains and Losses).

Note: long-term investments that are not part of your trading business should be entered on Schedule D and not marked to market on Form 4797.

Form 4868: Application for Automatic Extension of Time

Tax time can be confusing, especially for beginners. Which brings us to Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return).

When filed by April 15, the extension automatically moves your tax deadline forward three months to Aug. 15. If needed, you can then file a second extension, to Oct. 15, giving you a full six months to file.

However, the second extension is not automatic, and won’t be official until you receive the form marked “granted” back from the IRS.

And beware: An extension only buys you time to file, not pay. If you don’t remit more than 90% of your estimated tax due by the original April 15 deadline, your extension will be deemed invalid.

Don’t suffer through another tax season alone. Get Traders Accounting on your team today. As both traders and accountants, we can help design a tax-effective trading plan that is right for you. It’s a gift that will keep on giving for years to come.