Updated October 24, 2026. Quick answer: Tax Topic 429 is the IRS page on traders in securities for Form 1040 or 1040-SR filers. It separates investors, dealers and traders, lists the conditions for trader status, and explains the mark-to-market election under section 475(f). It says traders can choose mark-to-market accounting and investors cannot.
Quick reference
| Item | What the IRS topic says |
|---|---|
| Trader conditions | “To be engaged in business as a trader in securities, you must meet all of the following conditions:” |
| If the activity does not qualify | “If the nature of your trading activities doesn’t qualify as a trade or business, you’re generally considered an investor and not a trader.” |
| Where trader expenses go | “Traders report their business expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship).” |
| Self employment tax | “Gains and losses from selling securities from being a trader aren’t subject to self-employment tax.” |
| Who can elect mark to market | “Traders can choose to use the mark-to-market method of accounting, investors can’t.” |
| Election deadline | “As a trader, you must make the mark-to-market election by the due date (not including extensions) of the tax return for the year prior to the year for which you intend the election to become effective.” |
Investors, dealers and traders
The topic first separates three groups. Of investors it says “Investors typically buy and sell securities and expect income from dividends, interest, or capital appreciation.” Their sales are reported this way: “Sales of these securities result in capital gains and losses that must be reported on Schedule D (Form 1040), Capital Gains and Losses and on Form 8949, Sales and Other Dispositions of Capital Assets as appropriate.” The topic also says “Investment income isn’t subject to self-employment tax.”
Dealers are a third group. The topic says “Section 475 dealers must report gains and losses associated with securities by using the mark-to-market rules discussed below.” Our pages on Schedule D and Form 8949 cover how investors report sales.
What makes someone a trader
The topic says “Special rules apply if you’re a trader in securities, in the business of buying and selling securities for your own account.” It lists three conditions. First, “You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation;” second, “Your activity must be substantial”; and third, “You must carry on the activity with continuity and regularity.”
It also lists facts and circumstances to weigh, beginning with “Typical holding periods for securities bought and sold;” and “The amount of time you devote to the activity.”
Record keeping matters too. The topic says “A trader must keep detailed records to distinguish the securities held for investment from the securities in the trading business.” It also says “The special rules for traders don’t apply to those securities held for investment.”
The mark to market election
Without the election, the topic says “If you as a trader don’t make a valid mark-to-market election under section 475(f), then you must treat the gains and losses from sales of securities as capital gains and losses and report the sales on Schedule D (Form 1040) and on Form 8949 as appropriate.” With it, the topic says “The limitations on capital losses, the wash sale rules, and certain other rules do not apply to traders using the mark-to-market method of accounting (see section 475(d)(1)).” Such gains and losses are reported “on Part II of Form 4797, Sales of Business Property.” See Form 4797 and the wash sale rule.
On how to elect, the topic says “You can make the election by attaching a statement either to your income tax return if filed without an extension or to a request for an extension of time to file your return.” It warns that “It’s important to note that in general, late section 475(f) elections aren’t allowed.” Changing the accounting method involves “filing a Form 3115, Application for Change in Accounting Method.” Our page on Form 3115 covers that form. On ending the election the topic says “Late revocations are generally not allowed.”
Where this comes from
This page describes the IRS page titled Topic no. 429, Traders in securities (information for Form 1040 or 1040-SR filers), as served on irs.gov on October 24, 2026. The IRS page shows that it was last reviewed or updated on 24 Sep 2026. The IRS can change a topic after we read it, and the IRS page controls. General information, not tax or legal advice.
Common mistakes
- Deciding trader status by what you call yourself. The topic says “If the nature of your trading activities doesn’t qualify as a trade or business, you’re generally considered an investor and not a trader. It doesn’t matter whether you call yourself a trader or a day trader, you’re an investor for Federal income tax purposes.”
- Assuming trader treatment covers a whole account. The topic says “A taxpayer may be a trader in some securities and may hold other securities for investment.”
- Expecting investors to use mark to market. The topic says “investors can’t”
- Treating commissions as deductible business expenses. The topic says “Commissions and other costs of acquiring or disposing of securities aren’t deductible but must be used to figure gain or loss upon disposition of the securities.”
- Planning to elect after the fact. The topic says “A taxpayer that misses the deadline for a section 475(f) election generally must wait until the following taxable year and make a valid election for that taxable year.”
Related: IRS tax topics by number, Schedule D, Form 8949, Form 4797, The wash sale rule, Form 3115, and Schedule C.
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- IRS, Topic no. 429, Traders in securities (information for Form 1040 or 1040-SR filers) (irs.gov): https://www.irs.gov/taxtopics/tc429
- IRS, Tax topics index (irs.gov): https://www.irs.gov/taxtopics
Read from the IRS pages linked above on October 24, 2026. General information, not tax or legal advice. The IRS topic page and the instructions for your own form control, and your own facts decide the outcome.