Apparently investment expenses are taken on Schedule A as a Miscellaneous Itemized Deduction, and if you are under AMT you lose them? If you declare yourself to be a "trader" then you have to mark to market all of your positions at year end and pay tax on the gain, but you do get to take all your expenses against that income. Is there a way to not declare yourself a trader, but instead have that designation apply to something like an S Corporation?
In other words, if you wanted to have an investment company that had real expenses - such as hiring an individual to build financial models, monitor stocks and bonds, do original research, etc - and you wanted to take those expenses, is there a way to do that inside of a separate entity without complicating your personal return by declaring yourself a "trader"?
When you make an election under 475(f), you can still identify stocks you are holding for investment, so as to take long-term capital gains on them. See exception below.
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(1) Traders in securities (A) In general In the case of a person who is engaged in a trade or business as a trader in securities and who elects to have this paragraph apply to such trade or business? (i) such person shall recognize gain or loss on any security held in connection with such trade or business at the close of any taxable year as if such security were sold for its fair market value on the last business day of such taxable year, and (ii) any gain or loss shall be taken into account for such taxable year. Proper adjustment shall be made in the amount of any gain or loss subsequently realized for gain or loss taken into account under the preceding sentence. The Secretary may provide by regulations for the application of this subparagraph at times other than the times provided in this subparagraph.
(B) Exception Subparagraph (A) shall not apply to any security? (i) which is established to the satisfaction of the Secretary as having no connection to the activities of such person as a trader, and (ii) which is clearly identified in such person?s records as being described in clause (i) before the close of the day on which it was acquired, originated, or entered into (or such other time as the Secretary may by regulations prescribe). If a security ceases to be described in clause (i) at any time after it was identified as such under clause (ii), subparagraph (A) shall apply to any changes in value of the security occurring after the cessation.
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And also
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The special rules for traders do not apply to the securities held for investment. A trader must keep detailed records to distinguish the securities held for investment from the securities in the trading business.
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I doubt setting an S corp would make a difference because the income from that form just flows to your Schedule B.
Setting it up as a C corp would hit you with the personal holding company tax or something like that.
Trader status, including the ability to deduct expenses on Schedule C, is a facts and circumstances question. Traders are not required to elect mark to market. See Pub 550.
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