Newly2b: You have most of it. However, there are a couple of refinements I would like to pass along:
1) There really is no downside to the bookkeeping. Whether you use m-to-m or not you must still keep detailed records of your trading activity. In fact, m-to-m accounting is easier because you don't have to track wash sales.
2) You can actually be both an investor *and* a trader. If you keep your records straight as to what is an investment and what is a trade, you can still avail yourself of long-term capital gains rates on long positions held for more than a year. Separate accounts might be advisable to keep things straight.
3) You don't have to elect m-to-m to be treated as a trader. But, if you don't, wash-sale rules must be applied to the trades and gains or losses are reported on Schedule D. (Reporting the trades on Schedule D means that capital loss limitations would apply if net losses exceeded $3,000.)
4) One downside to the m-to-m method of accounting is that you lose the ability to time your gains at year end. I.e., you couldn't defer a gain by holding it into January of the following year.
Are you thoroughly confused yet?
Bob McP
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