Do you pay tax on options?

joey, it IS a capital gain, but it is also income

it is taxed at the capital gains rate, but technically speaking (even though it's schedule D), it's part of your INCOME if your STATUS is professional trader.

money earned in the course of your business falls under the definition of income, regardless of how it is taxed.

it's semantical, but i hope you see my point.

if you are a pro trader, you can file MTM, but that is not necessary, as you know. you cannot file MTM if you are not a pro trader

the primary different between pro traders and investors (all people who are not pro traders are investors by default - no matter whether they are daytraders or whatnot) is the use of schedule C, the fact that the pro can apply for MTM, and the use of schedule C. also, pro trader can use more than the 3k of capital losses in excess of gains (if necessary), whereas the investor can only use 3k (in excess of gains) and must carry the rest forward
 
Quote from volatilitypimp:

Those jobbers u talk to when u call 1-800-irs or whatever are completely clueless when it comes to the tax code. Talk to a CPA or tax attorney, my guess is capital gains need to be reported regardless of trading vehicle.
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My CPA said you don't have to report it if it's not on the 1099. I kept telling him it's illegal but he said don't worry about it as the IRS is only interested in #s matching up in the 1099. He signed off my return and I can point fingers at him if I get an audit. :)
 
It's not worth ignoring it. Pay it.

Why, if your broker doesn't report it? Because it IS income and there is an increasing chance of an audit.

The IRS let a lot of audits slide, but not anymore. And it may be stacked against traders anyway. For example, my broker reported that I had $4 million in stock sales this year.

Of course that is just gross sales from swing trades, but that is what is sent to the IRS. Will a flag pop up sometime if an IRS computer hits that on my 1099? Hasn't yet, but is easier to just pay and try to make it back than fight tax evasion charges IMHO.
 
this kind of begs the question, if one is a successful trader, why not buy a boat and trade from the Carribean?

The additional 25% over a few years should be enough to pay for the boat, and a satellite link and more ...

(i think I just revealed my true ambition ;) )
 
Quote from whitster:

your CPA is wrong

if you buy a security at price X and sell it @ price X+Y, that is a capital gain

PER-I-OD
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Yeah it's a capital gain, but it's not reported
 
whistler i beg to differ but it is not income period it's a capital gain. earned income is fica taxed and captial gains aren't. wether an investor or trader as a profession your stock sales are not fica taxed so its a captial gain
 
joey, this is a pure semantical debate, but if you earn a profit from a BUSINESS, by definition it is income

capital gains can be a FORM of income.

i can cut and paste some IRS documents that explain this concept if necessary
 
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