Scalpers - Reporting your gain/loss to IRS
- Thread starter polpolik
- Start date
Joeyata1 is showing how to use the "performance method" of accounting.
This is different from recording the gain or loss of each transaction. Both ways of accounting may use the method of only showing 1 account per line item in the Sced. D. Both methods are IRS recognized and accepted.
This is different from recording the gain or loss of each transaction. Both ways of accounting may use the method of only showing 1 account per line item in the Sced. D. Both methods are IRS recognized and accepted.
This sounds plausible. If the trader were doing a pairs trade repeatedly, he could have a huge gain offset by a huge loss. IRS only cares about wash sale losses. I think it would have to be an unusual (and probably obvious) situation.Quote from version77:
I remember reading a story quite a few years ago about a guy
who did not claim M to M and he had about $2 Million in trades or
so and almost all of them were considered wash sales and he
got nailed for the taxes on them and it wiped him out...
Accountants prefer MTM accounting because it means work for them, and because not doing wash sale adjustments is a form of non-compliance, which looks bad for them. Most day traders have little to worry about by ignoring wash sales.
i've talked with many trader accountansts over the years and its very rare to get audited. now if you have $1 billion in sales and write and lose 50k and write off 25k of expenses then your chances go up. also the person who's an enginerer and trades 4 times a day he's a sitting duck to get audited iof he tries to file trader status. trading must be your main if not sole souce of income
It's ridiculous to think that the IRS would want the details of every trade, any more than they would want the details of every sale if you operated a shoe store. Obviously, if they ask for it, you need to have it available, just as any other business has to show their general ledger, journal, invoices, etc. at an audit.
See IRS Topic 429 for the trader vs. investor test, as well as how to file. Though they don't quantitatively define "substantial", anyone who trades multiple times per day would seem to qualify.
See IRS Topic 429 for the trader vs. investor test, as well as how to file. Though they don't quantitatively define "substantial", anyone who trades multiple times per day would seem to qualify.
A wash sale is if you make a trade and incur a loss for that trade, you may not classify it as a loss yet if you trade that same stock within a 30 day period.
The loss can be used as a cost basis for the next trade though. Look it up on yahoo or google, basically it's a pain in the ass to account for.
Thanks to everyone who replied back, all info has been very useful and will definitely be used by me come tax time.
The loss can be used as a cost basis for the next trade though. Look it up on yahoo or google, basically it's a pain in the ass to account for.
Thanks to everyone who replied back, all info has been very useful and will definitely be used by me come tax time.
Correct. But to be more clear, it's a net year end LOSS & wash, for that security.
#1
For instance you make $1,000 in GOOG on Jan 10, 2005, then trade it, every day that year, up thru Dec 31st, 2005. You lost ..... $-35,000 net doing it.
Net loss is -$34,000 (+1000, -35000= -34,000). This is a wash sale, and the 34k loss is NOT allowable on THIS year's tax return, UNLESS you elected MTM in time for 2005.
It's a wash because it's a NET YEAR END loss....and you've traded it in the last 30 days.
EDIT: (SEE PAGE 6 OF THIS THREAD FOR CLARIFICATION)
You can take wash losses of ANY size with MTM accounting, as long as it's elected in time. Wash loss consideration is completely irrelevent for this type of trader accounting election. MTM is the way to go for 9.5++ outta 10 traders.
Next example:
#2
You lose -15,000 trading GOOG on Jan. 10, 2005, this time (instead of a gain).
You then trade it everyday that year up to Dec. 31st+ trying to make it back. You do. You make another +50,000. Year end gain is +35,000 (-15000+50000=+35000). This is not a wash sale, your year end net is what counts, and the timing of your most recent trades. Let's even suppose your last trade on dec. 31st was a loser in GOOG......it's irrelevent, regardless of accounting, as long as you're net positive for that year, in that security.
#3
Another example:
You make $5,000 trading GOOG on June 21st, 2005. You don't trade it again until Dec 16th, 2005, when you lose -$12,000. You don't trade it again, until mid 2006. You can take that -7k loss(+5,000-12,000=-7k) on your taxes to offset gains for 2005 IF YOU HAVE NET GAINS, OR USE MTM accounting, either one. Or losses up to 3k if you're not an MTM accounting trader.(you don't get full write off of loss, unless you are a MTM accounting trader).
There are a few other fine points I'm leaving out, but this may give a slightly clearer picture.
#1
For instance you make $1,000 in GOOG on Jan 10, 2005, then trade it, every day that year, up thru Dec 31st, 2005. You lost ..... $-35,000 net doing it.
Net loss is -$34,000 (+1000, -35000= -34,000). This is a wash sale, and the 34k loss is NOT allowable on THIS year's tax return, UNLESS you elected MTM in time for 2005.
It's a wash because it's a NET YEAR END loss....and you've traded it in the last 30 days.
EDIT: (SEE PAGE 6 OF THIS THREAD FOR CLARIFICATION)
You can take wash losses of ANY size with MTM accounting, as long as it's elected in time. Wash loss consideration is completely irrelevent for this type of trader accounting election. MTM is the way to go for 9.5++ outta 10 traders.
Next example:
#2
You lose -15,000 trading GOOG on Jan. 10, 2005, this time (instead of a gain).
You then trade it everyday that year up to Dec. 31st+ trying to make it back. You do. You make another +50,000. Year end gain is +35,000 (-15000+50000=+35000). This is not a wash sale, your year end net is what counts, and the timing of your most recent trades. Let's even suppose your last trade on dec. 31st was a loser in GOOG......it's irrelevent, regardless of accounting, as long as you're net positive for that year, in that security.
#3
Another example:
You make $5,000 trading GOOG on June 21st, 2005. You don't trade it again until Dec 16th, 2005, when you lose -$12,000. You don't trade it again, until mid 2006. You can take that -7k loss(+5,000-12,000=-7k) on your taxes to offset gains for 2005 IF YOU HAVE NET GAINS, OR USE MTM accounting, either one. Or losses up to 3k if you're not an MTM accounting trader.(you don't get full write off of loss, unless you are a MTM accounting trader).
There are a few other fine points I'm leaving out, but this may give a slightly clearer picture.