I’m not a tax advisor, but my understanding is that you can write off day trading losses, but how much depends on whether you’re just a regular investor or a legit “trader” in the IRS’s eyes.
Investor (most people):
- Losses = capital losses
- You can use them to cancel out gains
- If losses > gains, you can deduct up to $3,000/year from regular income
- Extra losses? Roll em into next year
- Watch out for the wash sale rule (rebuying too soon kills the deduction)
Trader Tax Status (TTS):
- If trading is basically your full-time gig and you meet certain criteria, you might qualify
- With Section 475 mark-to-market, losses are treated like business losses = no $3K cap, no wash sale rule
- Without 475? You still get to write off trading-related expenses (like platforms, software, home office, etc.)
I’d definitely speak to an accountant for advice on your circumstances – these things are never straightforward!
