Day trading taxes - LLC vs S-Corp? CPA and attorney gave different advice

Ok im confused. I trade options pretty actively - probably 600-700 trades this year, mostly 0-2 DTE SPX stuff. Made about $180k profit after commisions. Currently doing this in my personal brokerage account.

Talked to a CPA who said I should form an LLC and make the mark-to-market election. Said it would let me deduct trading losses without the $3k cap and might qualify for QBI deduction.

Then talked to a business attorney who said I should do S-Corp to avoid self employment taxes on the trading income.

These seem like opposite advice?? Do I need the LLC for the 475 election or the S-Corp to save on taxes? Can I do both somehow? My head is spinning

im in a similar situation, did about 900 trades this year mostly SPX 0dte. I just use a single member LLC and made the 475 election. havent bothered with s-corp yet

the QBI deduction on the trading income is nice but it phases out pretty quick if youre making good money. and theres some debate on whether trading income even qualifies - my cpa says yes since its ordinary income with the election, but ive seen others say no

honestly the whole thing is a mess and the IRS hasnt given clear guidance

ok this is super helpful. so it sounds like I could do:

1. Form LLC
2. Elect S-Corp taxation for the LLC
3. Make the 475 mark to market election
4. Pay myself reasonable salary, take rest as distributions

That gets me both the loss deduction benefits AND the SE tax savings?

Do i need to set all this up before end of year or can i do it in january for 2024?

That's the general idea, yes. On timing:

LLC formation: Can be done any time, but if you want S-Corp treatment for 2024, best to form by end of 2024 or very early Jan 2024

S-Corp election (Form 2553): Must be filed within 75 days of forming the LLC, or by March 15 for it to apply to the current year. There's also late election relief if you miss it.

475 election: Must attach a statement to your 2024 return (filed by April 15, 2024) to elect 475 treatment for 2024.

One more consideration - open a separate brokerage account in the LLC's name and trade through that. Keeps things clean and supports your trader status. Some brokers are easier to work with for entity accounts than others.

But seriously, get a CPA who specializes in trader taxation. This isnt something you want to DIY. The elections and timing are too easy to mess up.

Late to this thread but wanted to add something nobody mentioned - if you're trading Section 1256 contracts (futures, broad-based index options like SPX), you get automatic 60/40 treatment regardless of holding period. 60% long term, 40% short term capital gains.

This is actually pretty favorable tax treatment already. Max blended rate is around 26.8% vs 37% ordinary income rate. So making the 475 election on 1256 contracts could actually HURT you tax-wise since you'd convert that favorable 60/40 to ordinary income.

SPX options - those are 1256 contracts. Run the numbers carefully before making that 475 election. Might not be worth it unless you're specifically trying to deduct large losses against other income.

Wow good catch. I did not realize SPX options were 1256 contracts. So if I'm understanding correctly:

- WITHOUT 475 election: SPX gains get 60/40 treatment, max ~26.8% rate, but losses capped at $3k/year

- WITH 475 election: All gains ordinary income at 37% (my bracket), but unlimited loss deduction

Since I had a profitable year, the 475 election would have cost me money. But if I have a big losing year the 475 election is better...

This is exactly why I need a specialist CPA lol. Met with one last week and shes putting together projections for different scenarios. Will report back what she recommends.

Good discussion here. 1256 contracts - this is something a lot of traders overlook.

One more thing to consider for 2024: remember the 475 election is irrevocable (without IRS consent). So if you make it and then have a huge winning year, you're stuck paying ordinary income rates. The election is really best for traders who:

• Trade primarily non-1256 instruments (individual stocks, equity options)
• Have volatile P&L with significant losing years
• Have other ordinary income they want to offset with trading losses

For someone primarily trading SPX with consistent profits, you might be better off skipping the 475 election entirely and just using the S-Corp structure for the SE tax benefits on your other income/salary fwiw.