Daytrading and Taxes
- Thread starter kowboy
- Start date
I wish someone would write an article comparing/contrasting how to go about filing as stock vs futures traders. I trade futures, and so far my accountants had me itemize each and every trade. Now, I am reading that this is not necessary? Do you have any idea HOW LONG it takes to accomplish this incredible feat of paperwork? So how should a futures trader demonstrate their activity?
Why are futures different than stocks? Because they are automatically marked to market? Does this mean that if you elect Section 475 for stocks (which is mark to market) that you don't have to itemize???
What a can of worms. Is this all worthit??
but you all probably feel the same way...
one of the advantages of using a Section 475 election is to not have to bother with wash sales - one question though for someone who may know - is it true that if you do not trade 30 days prior to year end or do not trade for 30 days into the new year, that the wash sale rule doesn't kick in?
Yes. The wash sale rule should not affect the tax on capital gains if
a) you close all positions on November 30, 2003 and do not trade until January 1, 2004,
OR
b) you close all positions on December 31, 2003 and do not trade until February 1, 2004.
For safety sake, it is better to have no stock or option positions for 31(instead of 30) calendar days.
OMCATE/MSOSZYNSKI - I thank you for your replies. I am taking the liberty of asking another question. I have 5 different stock positions and 2 different options positions. MY last trade was on November 28. Of those positions only 2 stocks have been traded within the last 30 days and both have substantial losses.(So, (unless some miracle happens) I am going to hold on to them until 2004.
It seems that I will have to go back to the first and last purchase dates on these two positions to calculate the Wash Sale rule, because I have some small gains from several trades on each one, but a net loss up to this point.
It seems that if I hold these positions, I will have to carry over the losses and I have been told that this is a complicated process.
Your opinion would be appreciated.
It seems that I will have to go back to the first and last purchase dates on these two positions to calculate the Wash Sale rule, because I have some small gains from several trades on each one, but a net loss up to this point.
It seems that if I hold these positions, I will have to carry over the losses and I have been told that this is a complicated process.
Your opinion would be appreciated.
Quote from msoszynski:
I wish someone would write an article comparing/contrasting how to go about filing as stock vs futures traders. I trade futures, and so far my accountants had me itemize each and every trade. Now, I am reading that this is not necessary? Do you have any idea HOW LONG it takes to accomplish this incredible feat of paperwork? So how should a futures trader demonstrate their activity?
Why are futures different than stocks? Because they are automatically marked to market? Does this mean that if you elect Section 475 for stocks (which is mark to market) that you don't have to itemize???
What a can of worms. Is this all worthit??
Your accountant isn't doing your taxes properly if you are filling out a Sch. D for futures. I assume this is what he is doing.
The wash sale is only for 30 days. If you don't trade from Dec. 15 to Jan 14 an equity you had a loss from on Dec 15 trade, wash sale doesn't apply. You traded outside the designate period. Gains are NOT affected by the wash sale rule, only losses.
Later,
Cracked....... CPA
Like a lot of ET members, I expect to have unintended wash sales with my next return. As I understand it, I have three [viable] alternatives:
1. Do a wash sale adjustment on Sched D
2. Elect MTM accounting under Sec 475
3. Ignore wash sales
I think I understand the advantages & disadvantages of the first two. Doing the wash sale adjustment is complicated and error-prone, and my resulting Sched D no longer matches what my broker reports to IRS. Electing MTM accounting ought to be done after consulting an accountant (i.e. expense), requires special reporting the following year, and potentially takes away long term cap gains at some future time.
My question: If I decide to ignore wash sales, what is my risk (besides tax & penalty on disallowed losses)? How likely is a negligence penalty? I would like to keep things simple and cheap.
Thanks,
[Richard]
1. Do a wash sale adjustment on Sched D
2. Elect MTM accounting under Sec 475
3. Ignore wash sales
I think I understand the advantages & disadvantages of the first two. Doing the wash sale adjustment is complicated and error-prone, and my resulting Sched D no longer matches what my broker reports to IRS. Electing MTM accounting ought to be done after consulting an accountant (i.e. expense), requires special reporting the following year, and potentially takes away long term cap gains at some future time.
My question: If I decide to ignore wash sales, what is my risk (besides tax & penalty on disallowed losses)? How likely is a negligence penalty? I would like to keep things simple and cheap.
Thanks,
[Richard]
BULLSHIT should not be respected.
I trade the same 2 stocks every day, every day without fail. I then go to work after the opening hour. I'd like to see someone tell me I'm not a trader when I have 25 thousand transactions in the same stock in a year because I have a job too.
I've elected market to market so that I can write off commissions and regulatory fees as well as hardware for trading. Not to mention that I'd be paying taxes on money I never even received based on the wash rule.
However, I think I've increased my chances of being audited by electing a change in accounting practices compared to ignoring the wash rule. Simply because having a big loss in sched C with no income in sched C and a big gain in Sched D is a red flag in the system. I used to have misc. income which could be applied to sched C because I was a network consultant. That was a good cover for the red flag. Now I just hope, because I'm simply trying to pay what is fair. (paying income tax rates on cap gains is lame, but better than being hauled into tax court). I use turbo tax in conjunction with hand and pen forms, but always submit the paper copy.
I've elected market to market so that I can write off commissions and regulatory fees as well as hardware for trading. Not to mention that I'd be paying taxes on money I never even received based on the wash rule.
However, I think I've increased my chances of being audited by electing a change in accounting practices compared to ignoring the wash rule. Simply because having a big loss in sched C with no income in sched C and a big gain in Sched D is a red flag in the system. I used to have misc. income which could be applied to sched C because I was a network consultant. That was a good cover for the red flag. Now I just hope, because I'm simply trying to pay what is fair. (paying income tax rates on cap gains is lame, but better than being hauled into tax court). I use turbo tax in conjunction with hand and pen forms, but always submit the paper copy.