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Tax Summary of the §475(f)(1) election for Securities:
forgo making the election and...
Securities are limited for deductibility of any trading losses if §475 M2M is not elected.
Securities are subject to the Wash Sale Rule if §475 M2M is not elected.
Paper losses in securities held at year-end are not deductible if §475 M2M is not elected.
Paper gains in securities held at year-end are not taxable if §475 M2M is not elected.
Gains in securities held over 12 months are taxed at long-term tax rates if §475 M2M is not elected.

make the election and...
Securities are not limited for deductibility of any trading losses if §475 M2M is elected.
Securities are not subject to the Wash Sale Rule if §475 M2M is elected.
Paper losses in securities held at year-end are deductible if §475 M2M is elected.
Paper gains in securities held at year-end are taxable if §475 M2M is elected.
Gains in securities held over 12 months are not taxed at long-term tax rates if §475 M2M is elected.
Old Capital Loss Carryforwards may be trapped on Schedule D if §475 M2M is elected.



Tax Summary of the §475(f)(2) election for Futures/Commodities/§1256Contracts:
forgo making the election and...
§1256 contracts have a nice long-term gain rate for 60% of gains if §475 M2M is not elected.
§1256 contracts are limited for deductibility of any trading losses if §475 M2M is not elected.

make the election and...
§1256 contracts have no long-term gain rate for 60% of gains if §475 M2M is elected.
§1256 contracts are not limited for deductibility of any trading losses if §475 M2M is elected.
Old Capital Loss Carryforwards may be trapped on Schedule D if §475 M2M is elected.



Trade both Securities and Futures/Commodities/§1256Contracts and you have a dilemma:
If you are guaranteed to be profitable in Futures/Commodities/§1256Contracts then the choice often is simple: Do not elect §475 M2M for Futures/Commodities/§1256Contracts.  You will be taxed at the favorable 60/40 tax rates.

The problem, the needed compromise, comes if there is a possibility that you might have a year with a loss in Futures/Commodities/§1256Contracts.

Example: consider making $400,000 in securities gains with §475 M2M and then losing $400,000 in futures with no §475 M2M - a potential disaster waiting to happen.

But, by electing §475 M2M now for Futures/Commodities/§1256Contracts, you would give up the special 60/40 taxation benefit that you would have if you do not elect.



A note on Limited Deductibility of trading losses if §475 is not made:
This can vary depending on the taxpayer, but generally for individuals Securities Losses may be offset against Capital Gains each year and if losses are greater, then an additional $3,000 is generally used to offset other income each year.  Any remaining is used as a capital loss carryforward year-to-year.

For Futures/Commodities/§1256Contracts are similar to the above, but there is an optional election that can be made to carry the year's loss back three years to offset other Futures/Commodities/§1256Contracts gains that were taxed under the 60/40 tax rate.

What if you missed making a timely election?

Elections made for the year 2008

Elections made for the year 2007

Elections made for the year 2006

Elections made for the year 2005

Elections made for the year 2004

Elections made for the year 2003

Elections made for the year 2002

Elections made for the year 2001

Elections made for the year 2000

Elections made for the year 1999

Elections made for the year 1998

Elections made for the year 1997

Elections for years prior to 1997, the NOL,
"retroactive elections" and other special situations.

IRS reporting

¹ Generally for individuals that means no later than April 15th for the year of the election (i.e. after the beginning and before the end of the year for which M2M takes effect).  For most corporations that means no later than March 15th for the year of the election. For new taxpayers, those who have not previously filed an income tax return (such as a newly formed multi-member LLC, for example) then that means #1 preparing the actual election statement no later than 2 months and 15 days after the entity's formation and #2 to notify the IRS that the election was timely made, the new taxpayer must attach a copy of the statement to its original federal income tax return for the election year (after the end of the first year).

² In limited situations the §475(f) election may be revoked with the consent of the Secretary under §475(f)(3).
If a separately filing entity has made the election - in lieu of revocation the owners may simply stop using the entity, liquidate it or dissolve it.

³REG-104924-98 January 28, 1999 proposed Regs on Electing Mark-to-Market Accounting "[13] Estimated number of recordkeepers: 1,000."