[DGray]

Yo yo yo, wondering if my losses from day trading can be written off for tax purposes and how that works in practice??

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[Jonah]

I’m not a tax advisor, but my understanding is that you can write off day trading losses, but how much depends on whether you’re just a regular investor or a legit “trader” in the IRS’s eyes.

Investor (most people):

• Losses = capital losses
• You can use them to cancel out gains
• If losses > gains, you can deduct up to $3,000/year from regular income
• Extra losses? Roll em into next year
• Watch out for the wash sale rule (rebuying too soon kills the deduction)

Trader Tax Status (TTS):

• If trading is basically your full-time gig and you meet certain criteria, you might qualify
• With Section 475 mark-to-market, losses are treated like business losses = no $3K cap, no wash sale rule
• Without 475? You still get to write off trading-related expenses (like platforms, software, home office, etc.)

I’d definitely speak to an accountant for advice on your circumstances – these things are never straightforward!

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[DGray]

Cheers, that helps a lot! Makes sense – you don’t pay tax on losses in other endevors!

How do I actually record them in my returns though? Or should I hit up a tax advisor for that?

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[Jonah]

Check with a tax advisor but if you’re just a regular investor I think you typically report your capital losses on Schedule D of your tax return. If you have more losses than gains, you’d use Form 8949.

If you’re aiming for Trader Tax Status (TTS), it’s a bit more involved. You’ll be looking at reporting your losses using Form 4797 for the mark-to-market method if you’re eligible, or just deducting trading-related expenses on Schedule C if you don’t go for the full TTS treatment.

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[DGray]

Im speaking to one to be on the safe side, cheers mate.

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[Robbie]

You might be able to claim those trading Ls on your taxes, but it ain’t the same everywhere. In the US, you can write off losses (with limits), but if you’re outside the States, rules change – some countries are chill about it, others don’t let you deduct jack. Gotta check your local tax sitch.

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[Steve]

Have you read the Daytrading.com guide on day trading taxes in the US? It’s detailed and covers what losses are deductible and how to record them.

https://www.daytrading.com/us/taxes

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[DGray]

Useful resource, cheers for sharing.

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