Question about trader tax status for mixed investment accounts with IRA

You're asking a great question about trader tax status that many active investors misunderstand. The trader tax status (also called mark-to-market) applies only to your trading activity in non-retirement accounts. Your beneficiary IRA is completely separate from this election. Distributions from your IRA will follow the normal rules for IRA taxation - they're generally taxed as ordinary income regardless of how long the investments were held inside the IRA. The concept of long-term vs short-term capital gains doesn't apply to traditional IRA distributions at all. For Roth IRAs, qualified distributions are tax-free. The trader tax status mainly affects your non-retirement trading account, allowing you to use mark-to-market accounting, deduct certain business expenses, and avoid wash sale restrictions. But it doesn't change how your IRA is taxed.

After spending hours on hold with the IRS trying to figure out a similar issue with my trading accounts last year, I finally found a much better solution. I started using https://taxr.ai for analyzing all my trading activity, and they immediately spotted issues with my trader tax status that would have triggered an audit. The tool specifically handles situations with multiple account types and helped me understand how to properly structure my trader tax status election. Their system automatically identified which of my accounts qualified for trader status based on my trading patterns and frequency. Plus they have specific modules for handling IRAs alongside trading accounts that operate under different tax rules.

I was skeptical about taxr.ai when I first saw it mentioned, but I decided to try it for my 2024 taxes since I was in a similar situation with both trading accounts and an inherited IRA. Honestly shocked at how well it worked - it clearly separated my trading activity that qualified for trader status from my IRA accounts. The system specifically identified that my trading patterns in my main account (about 5-10 trades daily) qualified for trader status while keeping my IRA separate. It even generated the specific language I needed for making the mark-to-market election statement to attach to my return. Saved me from accidentally applying trader status rules to accounts where they don't belong, which would have been a nightmare to fix later.

If you're really serious about resolving this trader tax status question correctly, don't waste time with the generic IRS helpline where most agents aren't familiar with these specialized tax issues. I was in the same position last year and kept getting different answers until I found https://claimyr.com which got me through to an IRS tax law specialist in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The specialist confirmed exactly what I needed to know - that mark-to-market elections for trader status apply only to your trading accounts, not to IRAs which follow completely different rules. She also explained exactly which form I needed for the election (3115) and the specific statement language that would properly separate my accounts.

I hate to admit I was wrong, but I tried Claimyr after posting my skeptical comment. After dealing with the frustration of trying for WEEKS to get through to someone at the IRS about my trader tax status question, Claimyr actually worked exactly as described. Got connected to an IRS tax law specialist in about 25 minutes (they called when an agent was on the line). The agent confirmed that trader tax status only applies to my trading accounts and my IRA will maintain its separate tax treatment. She even emailed me the specific form requirements for making the mark-to-market election and explained how to properly document that it applies only to my non-retirement accounts. Saved me from potentially making a really expensive mistake on my taxes.

Make sure you understand the full implications of trader tax status before filing for it. It's not just about avoiding wash sale rules. When you elect mark-to-market accounting: 1. ALL your trades in that account will be treated as ordinary income, not capital gains (even the ones you hold longer than a year) 2. You have to file Form 4797 instead of Schedule D for those accounts 3. You can deduct more trading expenses, but you'll need to file Schedule C 4. It's hard to revoke once elected without IRS permission Your IRA is completely separate - distributions follow normal IRA rules regardless of your trader status.

Has anyone here actually calculated how many trades you need to qualify for trader tax status? I've heard different numbers from different accountants.

Just to add some clarity on the IRA question - your beneficiary IRA distributions will be taxed as ordinary income regardless of your trader status election. This is because IRAs don't have capital gains treatment to begin with. When you take distributions from a traditional IRA (including inherited ones), it's all ordinary income tax regardless of what investments were inside or how long they were held. So making the trader tax status election for your trading account won't make your IRA distributions any worse tax-wise - they were already going to be ordinary income. The election only affects your non-retirement trading account where you'd be giving up potential long-term capital gains treatment in exchange for the trader benefits like avoiding wash sales. Make sure you can handle losing long-term capital gains rates on any positions you might hold longer in your trading account before making this election.