Trading Expenses

Reporting Trading Expenses on the Tax Return

Where expenses are reported depends primarily on what type of trader you are:

Investor
Trader in Securities without a Mark to Market election
Mark to Market trader

Subsequent to determining your trade classification, expenses are reported on various schedules depending on whether or not you are trading inside and entity or as an individual.

Investor

Unfortunately, even though and investor will have some expenses for their trading activities, such as, subscriptions, trading software or perhaps margin interest, NONE of those expenses are deductible for the investor.

All investor trading expenses are considered Miscellaneous Itemized Deductions subject to the 2% threshold for Adjusted Gross Income and deductible on Schedule A.

However, thanks to the Tax Cuts and Jobs Act passed in 2017, Miscellaneous Itemized Deductions were temporarily suspended from 2018 to 2025 and then permanently eliminated under the OBBBA in 2025.

Thus, for the investor, expenses are not deductible but commissions are adjusted in the proceeds and/or basis of securities purchased or sold.

Trader in Securities

As a Trader in Securities ("TIS") you are consider to be engaged in a trader of business - which is never defined in the Internal Revenue Code - and as such, your expenses are deductible as follows:

Individual - Form 1040 Schedule C; Do not report Net Gains on Schedule C, which will automatically make you subject to Self-Employment tax based on your online or off-the-shelf tax software; Net gains or losses are reported on Schedule D/Form 8949
Partnership - Form 1065 page 1
Corporation ("C" or "S") - Form 1120 or Form 1120-S, respectively

What about an LLC?

An LLC (Limited Liability Company) is the most flexible entity. If you are an individual [classified as a Single Member LLC ("SMLLC")], expenses are reported as shown above. If there are two or more members in your LLC, that can be classified as a partnership and whether you are trading as an individual or with two or more members, you can elect to be taxed as an S corporation or a C corporation. You can read more about entities here.

Regardless of your classification, expenses are reported as shown in the bullet points above.

Mark to Market Traders

A mark to market ("MTM") trader, as discussed on this website, is a TIS who has made an election to be taxed as a dealer in securities, excluding the sale of securities to customers. MTM is covered in detail here.

Therefore, the MTM trader expense reporting will follow the expense reporting for a TIS as described above.

>> Note Regarding the Home Office Deduction <<

The Home Office deduction is allowed for Traders in Securities - which includes MTM traders. However, it is somewhat tricky to claim the deduction since it is limited to net income.

For an individual filing a Schedule C and either an individual or a single member LLC, since net income will be less than zero, no home office deduction will be automatically allowed. However, if your Schedule D shows gains, then the home office deduction is allowed on Schedule C, just not as a calculated amount. The same is true if you are a MTM trader and you report gains on Form 4797. You will need to calculate your deduction either using actual expenses or the safe-harbor of $5 per square foot of office space. You will then enter that as an "Other expense" on line 27b (for 2025) on Schedule C with this possible wording, "HOME OFFICE DEDUCTION FOR TRADER IN SECURITIES" and then the amount,

For all other entities, partnerships or corporations, you will need reimburse yourself under an "Accountable Plan" the expenses for the home office used by the entity - either using actual expenses or the safe-harbor. This is not difficult and can be offset from distributions (for partnerships and S corporations, but not C corporations) taken during the year. If no distributions are taken then calculate the deduction amount and transfer that amount to yourself. It is deductible by the entity and excludible from income personally.