Wash sales

[Q.E.D.]

For many years, for IRS purposes, I'm a "trader in stocks and stock options," but not in futures. The implication is that for stocks & stock options, at end-of-year, those stock/option positions are mark-to-market. Thus, all unrealized P/L at end-of-year, are considered realized at the Dec 31st closing price.

Re stocks/options, that prevents any long-term gain, unless specifically noted in advance (probably via a separate account,) but on the plus side, it means wash sales do not apply.

With my accountant, we have adjusted end-of-year tax forms, because IB broker removes all wash sales. That is a nuisance, but not a major problem.

However, in daily trading the broker implementing wash sales, is a big issue.

For instance, assume recently I shorted a $40 stock, but immediately IB reflected the position as short at $33 -- thus showing an immediate $ 700 loss @ 100 shares.
[Note: this does not impact total account equity; only the Unrealized on this new position.}

They did that because I had traded that stock the prior days, at the $33 price range, and IB removed all the wash sales, leaving a position at $33.

As far as I can see, IB does not have an option to eliminate wash sales in daily trading. I understand, because otherwise it could reflect an inaccurate P/L per IRS rules.

Anybody know how to handle above? Any broker that has ability to eliminate wash sales in daily activity?

Thanks.

IB help responded quickly, and will be changing my account so that stocks reflect both Average Cost Accounting and also will disable Wash Sales from my Activity Statements.

The change should take place beginning Monday.

I still think end-of-year reporting statements will reflect wash sales, but at least my daily trading OTE should be more in-line with reality.

Likely there will still be an issue, when I exercise stock options during the day, the strike price will probably still be reflected in OTE.

Recently I exercised 30+ options during the day, after selling the stock short for just a few cents profit, but because the strike was deep in-the-money, my realized P/L for the stock, immediately reflected a few thousand profit, rather than say a few hundred.

[BTW, I don't trade stock/options for pennies, but the option was expiring the following day.]

FYI, unlikely most prior experiences over 20+ years, IB help was fast, informative, and effective.

 

[qlai]

Why do you need this? Do you just want the IB tax documents to properly reflect your gains/losses? Would it not be enough to calculate gains/losses yourself without wash sale adjustments and use the numbers when reporting to theirs

 

[Q.E.D.]

Why do you need this? Do you just want the IB tax documents to properly reflect your gains/losses? Would it not be enough to calculate gains/losses yourself without wash sale adjustments and use the numbers when reporting to theirs
View attachment 338559

The IRS end-year reporting is not a big problem; accountant just goes and includes the wash-sale results that IB provide
However, daily trading is a nuisance, because as I said, if I take a new position in a stock, at say $30 @ share, because I traded the prior few weeks, IB Book Trader might show my long position at say $20 @ share, and thus the unrealized OTE would not reflect the position bought basically at current price.
The daily P/L in BookTrader would be accurate at that instance, but the average position price would again show $20. Often I like to know exactly the entry/exit point, especially if I just want to get--out, with at least break-even price.

 

[DaDude]

I have a question on the subject (not sure if I should start a new thread). The wash-sale rule is a major PITA, but not a huge issue for me because I only trade three stock (high capitalization, high volatility and high volume and there are very few that currently qualify for this).

The bigger question that comes to mind is if there is there is a value for create a S-Corp/LLC (taxed as S-Corp) to take advantage of section 475 f (mark-to-market)?

I had LLC's and S-Corps in the past for doing consulting work and I am fully familiar with the advantages/disadvantages (tax deduction of health insurance and any expenses including interest and broker fees, 401k Solo, potential more anonymity with a Wyoming LLC taxed as a S-Corp etc.)
1. Are there different margins provided for corp vs individual at brokerages (higher/lower)?
2. Is the cost for trading increasing at brokerages due to corp status?
3. Is the tax filing situation substantially more complex?

Would greatly appreciate some feedback.

 

[qlai]

1. Are there different margins provided for corp vs individual at brokerages (higher/lower)?

I don’t think so. Portfolio margin should be same.

2. Is the cost for trading increasing at brokerages due to corp status?

Market data costs is the only thing I can think of.

3. Is the tax filing situation substantially more complex?

As far as trading is concerned, not much hassle especially with mark to market. I have C-corp.

 

[Robert Morse]

I agree with all three responses.

I don’t think so. Portfolio margin should be same.

Market data costs is the only thing I can think of.

As far as trading is concerned, not much hassle especially with mark to market. I have C-corp.

 

[DaDude]

I don’t think so. Portfolio margin should be same.

Market data costs is the only thing I can think of.

As far as trading is concerned, not much hassle especially with mark to market. I have C-corp.

Hello QLAI,

May I ask what you see as the advantage of a C-Corp for day trading (besides the usual corporate write offs)?
I understand the advantage of retaining earnings (up to $250K without potentially triggering AET), but would like to hear from you what other advantages you see.

Along the line of AET, in case you have over $250K in earnings you would like to keep on the books without triggering AET, what is your justification for "reasonable needs" to avoid AET?

Thanks in advance

 

[qlai]

I opened the c-corp prior to making any money trading. My main motivation was to shield my personal assets from some sort of catastrophic blow up (loosing more than my account). My accountant/friend suggested opening c-corp and he said that I could later decide to report income as s-corp if needed. He also assured me that there are work arounds for double taxation and AET. For AET, you could buy a property or a small business for example. Besides mark to market being no big deal, I think the main benefit of c-corp, as far as trading is concerned, is the ability to write off trading losses against all types of income (I also do tech consulting under same corp). Can't say I really put too much thought into all of this, just kind of happened and it stuck