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

They're both partially right but talking about different issues. Let me break this down:

The Mark-to-Market Election (Section 475): This is about how your gains/losses are characterized. With the election, gains become ordinary income (not capital gains) and you can deduct losses without the $3k cap. You do NOT need an LLC to make this election - you can do it as a sole proprietor. The election is made on your tax return.

The Entity Structure (LLC vs S-Corp): This is about self-employment tax and liability protection. An LLC taxed as disregarded entity flows through to your 1040. An LLC taxed as S-Corp (or an actual S-Corp) lets you pay yourself a salary and take remaining profits as distributions that avoid SE tax.

The catch: If you make the 475 election, your trading income becomes ordinary business income. If you're operating as a sole prop or disregarded LLC, that ordinary income might be subject to SE tax. The S-Corp election helps avoid that.

@TaxStrategyPro has it mostly right. I'll add some nuance from the legal side.

The SE tax issue with trading is actually more complicated than most people think. Even with mark-to-market, there's a decent argument that trading profits aren't subject to SE tax because you're not providing services to customers - you're trading for your own account. The IRS hasn't been super clear on this and there's conflicting case law.

That said, the S-Corp structure does provide more certainty. You pay yourself a "reasonable salary" (maybe $60-80k for someone trading full time), pay SE tax on that, and the remaining $100k+ comes out as distributions with no SE tax.

For $180k in profits, the S-Corp is probably worth the extra complexity. You're looking at potential SE tax savings of $10-15k per year. The S-Corp costs maybe $1-2k annually in extra compliance (separate return, payroll, etc).

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 2026?

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

LLC formation: Can be done any time, but if you want S-Corp treatment for 2026, best to form by end of 2025 or very early Jan 2026

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 2025 return (filed by April 15, 2026) to elect 475 treatment for 2026.

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.