Active Option Trading Tax Implications - Several questions

V

VIXTrader

What is the best course of action to limit the tax filing hassle for people who actively trade options?

Assumptions:

- US citizen, but non US resident (working overseas)
- Living overseas, but trading entirely on US exchanges (S&P, VIX, VXX, etc)
- making about 50 option trades per month
- Income off these trades is relatively small compared to their full time employment salary


Do they literally have to track every single trade transaction? That's a huge undertaking. Is it good enough to just attach a print out of all trades, from Interactive Brokers for example?

What do they do about wash sale rules?

Do wash sale rules on options still apply if the new contract is for the next month expiry? Is that considered a "materially different" security?

Should they try to apply for "trader" status?

Should they make the Mark to Market election?



Thanks in advance to anyone who can help answer some of these questions.
 
You are nowhere close to needing to file Tax trader status. If you want to bone up on the subject. Here is a known authority and member of this forum.

http://www.greentradertax.com/

For most people, this is the only thing you need to read:

http://www.irs.gov/pub/irs-pdf/p550.pdf

Yes, they want to see every transaction. To simplify your life, close the books at the end of the year and go flat. Have your broker tax file processed by:

https://www.form8949.com/turbotaxactivetradersolution2013.html.

When you find the Holy Grail and/or leave your employer, hiring Robert Green for tax advice/preparation will be chump change.
 
Note that the 'wash sale' rule no longer applies if you eventually sell the stock or option that you rebought and another 30 days passes before the end of the year. For example:

1. You buy XYZ in 2014
2. You sell XYZ for a loss in 2014
3. Before 30 days passes, you buy XYZ again (wash sale rule begins applying now because you didn't wait 30 days)
4. You sell XYZ again (another 30 day clock begins ticking... see comment below)

If you do not buy XYZ yet again and 30 more days pass (and it's still 2014) you can then claim whatever overall loss you incurred from the above trading on your 2014 tax return.
 
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