Why the election can matter
Without a valid Section 475 election, securities gains and losses are generally capital, and wash sale rules can still apply. With a valid election, trading securities are generally marked to market and reported with ordinary gain or loss treatment, subject to the rules and exceptions.
That can be valuable for a trader with large losses or heavy wash sale exposure, but it can also create surprises if the election is made casually.
Questions to answer first
- Do your facts support trader tax status?
- Are you making the election by the correct deadline?
- Do you hold long-term investment positions that need to be identified separately?
- Will ordinary income treatment, state tax rules, and estimated payments produce the result you expect?
What a CPA should model
- Prior-year and current-year trading results.
- Open positions at year-end and mark-to-market impact.
- Wash sale exposure across taxable brokerage accounts.
- Return forms, method-change requirements, and documentation trail.