When do I make the 475(f) mark-to-market election? First year trader

Started trading full-time in January 2025 (quit my job). Doing SPX 0DTE options mostly. Already made like 400 trades. My CPA mentioned I should consider the 475(f) mark-to-market election to avoid wash sale issues.

When exactly do I need to make this election? Is it too late for 2025? And what's the process?

Critical timing issue here. For an existing trader, the 475(f) election must be made by April 15th of the year you want it to be effective. So for 2025, that deadline was April 15, 2025.

HOWEVER - there's an exception for first-year traders. Since you started in January 2025, you can make the election for your first year up until the due date of your 2025 tax return (including extensions). So you have until April 15, 2026, or October 15, 2026 if you file an extension.

Wait so I still have time for 2025? That's good. How do I actually make the election? Do I file something with the IRS now or wait until I do my taxes?

You attach a statement to your 2025 tax return (filed in 2026). The statement needs to include:

• Your name and taxpayer ID
• Statement that you're making the election under IRC Section 475(f)
• The first tax year the election is effective (2025)
• The trade or business that gives rise to the election

You also need to maintain contemporaneous records showing you're a trader, not an investor. The IRS looks at factors like frequency of trades, holding periods, and whether trading is your primary income source.

Just to add - 475(f) is a double-edged sword. Benefits:

• No wash sale rules
• Can deduct unlimited losses (not capped at $3k like capital losses)
• Mark unrealized positions to market at year-end

Downsides:

• ALL gains taxed as ordinary income (no long-term capital gains rate)
• Can't cherry-pick which securities get MTM treatment
• Hard to revoke once elected

Make sure the benefits outweigh the costs for your strategy.

The ordinary income thing doesn't bother me - I'm doing 0DTE options so everything is short-term anyway. The wash sale thing is killing me though. I've had to track like 50+ wash sales manually and I'm sure I'm getting some wrong.

What do you mean by "hard to revoke"? Like I'm stuck with it forever?

To revoke a 475(f) election, you need IRS permission via a private letter ruling. That costs $10,000+ and takes months. The IRS rarely approves revocations unless there's a material change in circumstances.

So yes, practically speaking, it's permanent. Don't make this election unless you're committed to being a full-time trader.

Also important: you need to qualify as a "trader in securities" under IRS rules. The Tax Court uses these criteria:

1. Trading is substantial (frequent and regular)
2. You seek to profit from short-term swings, not long-term appreciation
3. Trading is your business (substantial time and effort)

One thing no one mentioned: you should set up a trading entity (LLC or S-corp) before making the 475(f) election. Gives you way more deductions.

With an entity you can deduct:

• Home office
• Computer equipment, monitors, etc.
• Data feeds and trading software
• Education (courses, books)
• Health insurance (if S-corp)

As an individual trader these deductions are limited or not allowed.

@DaytradeWiz is right that entities give more deductions, BUT you need to be careful. If you set up an entity now in May 2025, the election deadlines are different.

For a new entity formed in 2025, you'd need to make the 475(f) election within 2 months and 15 days of formation, OR by April 15, 2026 if the entity is formed before April 16, 2025.

Since it's already late May, if you form an entity now, you'd have until early August to make the election for that entity's 2025 tax year.

This is complex - I'd recommend working with a CPA who specializes in trader tax before making moves.

This is getting complicated. Let me see if I understand:

Option 1: Make the election as an individual for 2025 (attach statement to my 2025 return filed in 2026)

Option 2: Form an LLC now, make the election for the LLC by early August, transfer my trading to the LLC

Which is better? I'm doing about $50k/month in volume if that matters.

At $50k/month volume, you're serious enough to benefit from an entity structure. My recommendation:

1. Form an LLC now (or by mid-June latest)
2. Elect S-corp treatment for the LLC
3. Make the 475(f) election for the entity within the deadline
4. Transfer your existing trading account to the LLC (coordinate with your broker)

This will cost more upfront (legal fees, accounting fees, possible transfer taxes) but saves significant money long-term through deductions and potential payroll tax savings.

Budget around $2-3k for setup and $3-5k/year for accounting/bookkeeping.

Update: Had a consultation with a trader-focused CPA. Going with the LLC route. Forming it this week and making the 475(f) election. Also going to backdoor it to January 1, 2025 so all my 2025 trades are covered.

Thanks everyone for the guidance. This forum is invaluable.