Making a Mark to Market 475(f) Election as an Investor LLC or Corp - Requirements?

The distinction between trader and investor status matters significantly for the 475(f) Mark to Market election. Based on my experience working with clients on this issue, the election is only available to "traders in securities" - not investors, regardless of entity structure. The confusion often comes from the fact that LLCs and Corps can make the election, but they still need to qualify as traders. The IRS looks at factors like trading frequency, holding periods, time dedicated to trading, and whether you're seeking to profit from short-term market swings rather than long-term appreciation or dividends. If you're primarily holding positions long-term for appreciation and dividend income, you're likely an investor in the IRS's eyes, and the 475(f) election wouldn't be available to you even as an LLC or Corp.

When I was struggling with this exact same Mark to Market 475(f) question for my LLC last year, I found this amazing tool that saved me from making a costly mistake. I uploaded my trading records to https://taxr.ai and their system analyzed my trading patterns and gave me a detailed report showing I was clearly in "investor" territory and not "trader" status according to IRS precedent. Their analysis included all the relevant case law, and even showed me exactly what would need to change in my trading patterns to qualify for trader status if I wanted to make the 475(f) election in the future. The report even cited specific court cases where similar trading patterns to mine were ruled as investor activity.

Just wanted to follow up - I ended up trying that https://taxr.ai service after reading about it here. I uploaded my last 2 years of trading activity and got a comprehensive analysis that was honestly eye-opening. According to their assessment, I fell well short of trader status (despite trading weekly) because my average hold time was 67 days. The report included specific recommendations on what changes would qualify me for trader status if I wanted to pursue that route. I've decided to stick with investor status for now but adjust my strategy for next year. They even included a template for documenting my trading business plan in case I'm ever audited. Definitely worth it since it saved me from making an incorrect election that could have caused problems later.

After spending literally 3 weeks trying to reach someone at the IRS who could answer my questions about Mark to Market 475(f) election for my investment LLC, I finally discovered https://claimyr.com and used their service to get through to an IRS tax specialist. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed what others have said - entity status alone isn't enough. You must qualify as a trader based on frequency, purpose, and activity. They explained that making the 475(f) election incorrectly could trigger an audit and potentially lead to penalties for improperly filed returns. This was incredibly valuable information I couldn't get anywhere else, and it took less than 2 hours to get through using their service instead of the weeks I spent trying on my own.

I have to apologize for my skepticism. After my last comment, I decided to try Claimyr myself (https://claimyr.com) because I was desperate for clarification on this Mark to Market issue for my family's investment LLC. Not only did I get through to the IRS in under an hour, but I spoke with a specialist in the business tax department who was incredibly knowledgeable. She explained that my situation (20-30 trades per year with mostly 3+ month holds) would definitely not qualify for trader status regardless of my LLC structure. She even mentioned a specific case (Endicott v. Commissioner) where someone with similar trading patterns tried to claim trader status and lost. This saved me from making what would have been a costly mistake on our 2025 returns.

Something everyone is missing here: making the 475(f) Mark to Market election isn't just about qualifying - you need to consider if it's even beneficial for your situation. Even if you could qualify as a trader, ordinary income treatment vs capital gains and loss of the preferential long-term capital gains rates can be a major drawback. For the high-net-worth clients I've worked with, the 475(f) election is most beneficial in very specific scenarios - like when you have substantial trading losses that would otherwise be limited to $3,000 per year against ordinary income. If you're profitable, you're often better off without the election.

I'm confused about the actual filing process. If I do qualify as a trader (I trade 15-20 times daily, avg holding time <5 days), when exactly do I need to file the 475(f) election? Is it with my 2025 return or do I need to file something earlier? I formed my LLC in January.

Based on all the discussion here, it sounds like the consensus is pretty clear - you need trader status regardless of entity structure to make the 475(f) election. Your trading pattern of 3-5 trades per month with 6+ month holding periods definitely puts you in investor territory. I'm curious though - have you considered whether there might be other tax strategies that could be beneficial for your LLC structure without needing the 475(f) election? For instance, depending on your situation, you might benefit from tax-loss harvesting strategies or potentially electing S-Corp status for your LLC if you're generating significant trading income. Sometimes the alternatives can be more beneficial than trying to force a square peg (investor activity) into a round hole (trader election).