Interesting tax recommendation on CNBC

[WarEagle]

I was watching CNBC today (pretty sad on a holiday I know...) and just saw a partner with Earnst and Young field a question about daytrader transaction reporting. The question was "is there an accounting firm that specializes in daytrading and what is an easy way to track each transaction for reporting purposes?" (or something like that).

Her answer surprised me. She said she knew of no accounting firms for daytraders (well, she works for E&Y so that doesn't surprise me) but she basically said you should just look at the cost basis at the beginning of the year versus at the end of the year and just report one number on your taxes. The only caveat she mentioned was keeping good records "in case of an audit". Now for someone who is a partner at a major accounting firm I was very surprised to hear a recommendation like that. No mention of "trader status" or "mark to market accounting".

All of my taxes in the past have either been partnership K-1s or futures marked to market, so I haven't had to deal with that, but as far as I know, the IRS rules are just the opposite.

Sounds like terrible advice to put out on national television.

 

[gms]

These type of informational segments are never in depth, they are sound bytes. TV is entertainment, and must move along rapidly to the next topic so that people don't change channels.

I saw the segment too, she didn't know any accounting firms that specialized in an 'easy way' to track trades. The other expert guest said that a lot of people do just what she had mentioned, that is, the calculation of deducting their end of year account balance, adjusted for deposits and withdrawals, from the beginning balance to figure the gain/loss.

FWIW, I happened to call the IRS the other day just so I could confirm this, and it turns out to be OK with them, I'm told: On Schedule D, just list the totals. You don't have to attach an itemization of all the trades. Make mention on the schedule that the transaction details are available upon request. Make sure you do have the transactions itemized somewhere in the event you're ever questioned about it. And make sure that the total sales price is in agreement with the gross proceeds from the 1099s.

 

[taigong]

Quote from gms:

FWIW, I happened to call the IRS the other day just so I could confirm this, and it turns out to be OK with them, I'm told: On Schedule D, just list the totals. You don't have to attach an itemization of all the trades. Make mention on the schedule that the transaction details are available upon request. Make sure you do have the transactions itemized somewhere in the event you're ever questioned about it. And make sure that the total sales price is in agreement with the gross proceeds from the 1099s.

I am waiting to see if the above will stand IRS's review. 2002 was the year I started very actively trading (without electing MTM). For that year's tax return, I excluded the so called "wash sales" and as a result the total sales price does not agree with the proceeds reported by my broker on 1099 forms. As a result I got a notice (prelude to an audit, I guess). So I amended the sche D and included all transactions, wash or no wash, so that the two numbers match and refiled sched D. When I include "wash sales" I actually will have a slightly bigger loss carry-over, which will be in my favor if IRS accepts that, so what the heck. I will find out in another 3 weeks.

I think as a routine, IRS just first check the number you report on Sched D and the number on 1099 and would not have the manpower to go over hundreds of trades I itemize in attachments.

tc