Understanding M-T-M, Wash-Sales and Day Trading Tax Benefits - Worth It?

I've been a tax advisor for day traders for almost 15 years, and your analysis is pretty solid. Let me add some clarification: On wash sales - you're correct that it's primarily a timing issue rather than a permanent loss of the deduction. However, there are a few scenarios where wash sales can permanently hurt you: 1) If they occur in December and the repurchase is in January, the loss gets pushed to the next tax year, and 2) If you trade between taxable and non-taxable accounts (like an IRA), you can permanently lose the deduction. Regarding MTM, you're spot on about the gamble aspect. One additional point - once you elect MTM, it's difficult to revoke. You need IRS permission, which isn't automatically granted. MTM works best for high-volume traders with significant gains AND losses throughout the year. Trading through an entity (S-Corp or LLC taxed as S-Corp) can offer benefits, but remember that "reasonable compensation" is scrutinized by the IRS. You can't just take all profits as distributions to avoid self-employment taxes. Also consider the added complexity and costs of maintaining a corporate structure - annual filing fees, separate accounting, potential state taxes, etc.

After years of stressing about tax optimization for my trading activity, I finally found an amazing solution at https://taxr.ai - their AI analysis completely transformed my approach to trading taxes. I uploaded my trading statements and tax documents, and the system analyzed my wash sale patterns and provided clear recommendations about whether MTM election would benefit me based on MY actual trading history. What blew me away was how it simulated different scenarios - showing exactly how much I'd save (or not) with different approaches based on my personal trading patterns. Saved me thousands compared to my previous strategy and identified several missing deductions related to my trader status that my previous accountant had missed.

Wanted to follow up after trying taxr.ai that was mentioned here. Honestly, I was skeptical, but it completely changed my understanding of my trading tax situation. I've been going back and forth on MTM for 3 years, and within minutes the system showed me I would have LOST money with MTM in 2 of the last 3 years based on my actual trading patterns. The wash sale analysis saved me hours of headache - it identified patterns in my trading where I was consistently triggering wash sales with options on the same underlying, something I hadn't even noticed. The recommendations for trading schedule adjustments will save me about $7,300 in taxes this year. Worth every penny for serious traders!

If you're trying to get clarification from the IRS about trader status or MTM elections, good luck getting through to anyone who actually knows the tax code... I spent 4 weeks trying to reach someone who could answer specific questions about Section 475 elections. After endless hold times and transfers, I found Claimyr (https://claimyr.com) which got me connected to an actual IRS tax specialist in under 45 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c I was about to pay my tax attorney $650 for a consultation when a friend recommended this service. The IRS agent I spoke with confirmed my understanding of the rules around changing from MTM back to regular status and gave me the exact form references I needed. Saved me so much time and money.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I was desperate to resolve my trader status question before filing, so I gave it a try. Within 40 minutes I was talking to an IRS tax specialist who not only understood Section 475 elections but walked me through the exact procedure for making a late election due to circumstances beyond my control. The agent confirmed that my trading pattern qualified for trader status and explained how to properly document everything to avoid an audit flag. This was after my accountant gave me conflicting information that could have caused serious problems. If you're dealing with specialized tax questions about trading, getting direct answers from the IRS is invaluable.

I'd like to add something about wash sales that isn't discussed enough. While most brokers track wash sales within their platform, they DON'T track wash sales across different brokerages or accounts. If you sell at a loss in your Fidelity account and buy back in your TD Ameritrade account within 30 days, neither broker will flag it as a wash sale, but the IRS still expects you to track and report it. This becomes even more complex with options on the same underlying security. The "substantially identical" rule isn't clearly defined, and many traders accidentally trigger wash sales by trading options after selling the underlying security at a loss (or vice versa).

Has anyone actually audited their broker's wash sale calculations? I downloaded my transactions from E*TRADE and ran them through my own spreadsheet, and found 14 instances where they failed to properly adjust cost basis for wash sales involving options on the same underlying. When I called them about it, they admitted their system sometimes misses these connections. Makes me wonder how many traders are filing incorrect returns based on broker statements.

I've been trading for about 6 years and went through the same analysis paralysis you describe. Here's what I learned the hard way: The S-Corp route can work, but you need to factor in the additional costs beyond just filing fees. You'll need quarterly payroll processing, workers' comp insurance (even as the sole employee), and potentially state franchise taxes. In my case, these costs ate into the self-employment tax savings significantly. One thing that helped me was tracking my trading patterns for a full year before making any MTM decisions. I kept a simple log of when I had open positions at year-end vs when I closed everything out. Turns out I naturally close most positions before December anyway, which made MTM less beneficial since I wasn't carrying many paper gains/losses into the new year. For wash sales, I'd recommend being extra careful with December trading. Even though the loss isn't permanently gone, having it deferred to the next tax year can mess up your quarterly estimated payments if you're not expecting it. I got hit with underpayment penalties one year because of this timing issue. The broker tracking issue others mentioned is real - I use three different platforms and have to manually reconcile everything. It's tedious but necessary if you want accurate reporting.

Great discussion everyone! As someone who's been through similar analysis, I want to add a perspective on the psychological aspect of these tax strategies that often gets overlooked. I spent two years obsessing over MTM election and S-Corp structures, running endless scenarios and calculations. What I realized is that the mental bandwidth consumed by complex tax strategies was actually hurting my trading performance. The cognitive load of tracking wash sales across multiple accounts, worrying about year-end positions for MTM, and managing corporate paperwork was distracting me from what actually generates profits - good trading decisions. Sometimes the "suboptimal" tax approach that's simple and automated is actually optimal when you factor in the time and mental energy costs. My trading improved significantly when I simplified to a single broker with good tax reporting and accepted that I might pay a bit more in taxes but gained back focus and trading clarity. That said, for high-volume traders with substantial profits, the complexity can definitely be worth it. The key is being honest about whether the tax savings justify the operational overhead for your specific situation and trading style.