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Tax Implications & Record Keeping Flashcards

7 cards from real CPT practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. A trader who qualifies for trader tax status (TTS) may deduct trading-related expenses on which IRS form?

    Answer: Schedule C

    Traders with TTS status report business expenses on Schedule C, allowing deductions not available to investors.

  2. Under the wash-sale rule, if you sell a stock at a loss and repurchase the same stock within how many days before or after the sale, the loss is disallowed?

    Answer: 30 days

    The wash-sale rule disallows a loss if the same or substantially identical security is purchased within 30 days before or after the sale.

  3. Which tax election allows eligible traders to mark all open positions to market on the last day of the tax year, converting capital gains/losses to ordinary income/loss?

    Answer: Section 475(f) election

    The Section 475(f) mark-to-market election lets qualifying traders treat unrealized gains and losses as ordinary at year-end.

  4. For a trader filing as a sole proprietor with TTS, how are net trading profits subject to self-employment (SE) tax?

    Answer: Net trading profits are never subject to SE tax

    Trading gains, even for TTS traders filing on Schedule C, are generally not subject to self-employment tax because trading is not considered a 'trade or business' for SE tax purposes.

  5. What is the holding-period threshold that distinguishes a short-term capital gain from a long-term capital gain in the US?

    Answer: More than 12 months

    An asset held for more than 12 months qualifies for long-term capital gains rates, which are lower than ordinary income rates.

  6. Which IRS form is used to report individual capital gains and losses from sales of stocks, bonds, and other capital assets?

    Answer: Form 8949

    Form 8949 is used to report sales and other dispositions of capital assets, with totals flowing to Schedule D.

  7. A trader receives a 1099-B from their broker showing proceeds of $200,000 and a cost basis of $185,000. What is the trader's reportable capital gain?

    Answer: $15,000

    Capital gain equals proceeds minus cost basis: $200,000 − $185,000 = $15,000.