http://greentradertax-traders-assoc...-congress-please-fix-tax-laws-active-traders/ If you trade financial instruments for a living, please sign our petition. There are problems with tax laws and IRS regulations for active traders including wash sale rules, Section 475 MTM and trader tax status (business treatment). Without fixing these tax laws, traders may not be able to deduct trading losses and expenses, thereby raising their tax bills.
>>The IRS needs to either enforce or change the wash sale rules to better coordinate broker and taxpayer reporting. Not sure how the IRS can enforce the wash sale rules. Should it go by brokers reporting or taxpayer reporting? If it's taxpayer reporting then how the IRS can argue with what the taxpayer reports? Meaning the IRS has no knowledge of taxpayer transactions other than what he is reporting in order to dispute him being wrong, right? If the IRS goes by brokers reporting ( and I doubt it's legal since taxpayer can't be held responsible for it ) then once again it has no knowledge of wash sales across the accounts. In my mind, the IRS should be petitioned to abandon the wash sale rule as unfair ( losses can't be deducted but profits always taxed ) for all traders and investors.
The Wash sale rules create an unnecessary burden and cost for a trivial, on average, change in net tax revenue. In a series of round trip transactions it seems the net profit or loss is exactly the same whether or not the wash rule is in place, because the basis adjusts with each new long or short position. The only difference with the wash rule in place versus without it are the tax years in which the losses and gains accrue. In the long run, and on average, I don't think it would amount to a hill of beans difference net whether the wash rule existed or not. Why therefore do we insist on such absurd and unnecessary complexities?
You are wrong. You must always pay taxes on annual profits, but you can't deduct annual losses with wash sale rule. If your losing position will be profitable next year, you might never deduct your previous year losses.
Sadly you usually don't know in advance whether you will have a profit or loss in the next tax year! Without the wash rule you would be able to deduct losses! With the wash rule you can't deduct a loss generated by a "wash" transaction, so this rule prevents people from making such transactions. Therefore, you want to compare the net loss/gain between not making a wash transaction and not having the rule in place. When you do that you will see that the net gain or loss is exactly the same! If you assume, however, that having the wash rule in place is ineffective in preventing people from making wash transactions, and therefore they are taking losses they can't deduct, then I would agree with you. Under these circumstances the trader will be cheated out of losses he should have been able to deduct. But this is not realistic for any experienced trader. Experienced traders don't do wash transactions! The rule is effective in preventing them. So, in summary, you want to compare not doing wash transactions with not having the rule in place! When you make that comparison you will see that the net losses and gains are exactly the same regardless of whether you had the rule and therefore did not do wash transactions, or you did not have the rule and you did wash transactions till the cows came home. The net losses and gains are then exactly the same, and the only effect of having the rule in place is to alter the tax years in which losses/gains accrue. Depending on carryover rules and the variation of one's adjusted gross from one year to the next, I suppose this might make some differences. But are those differences worth the added paper work and complexity? Frankly, I think the folks who came up with this idiotic rule were trying to prevent matching a big loss against a big, one-time, jump in income. Surely that is the only purpose of the rule --other than stimulating paper and ink sales, and I personally don't think it is worth the added complexity. Now, if you have the rule and people ignore it and still do wash transactions, and therefore can't take deductions for losses, then I would agree that something has been accomplished, viz., traders are cheated out of deductions. But this is not the case. With the rule in place, we don't do wash transactions!
Sure, we do. We as traders close positions and immediately open new ones. If we have gains, we pay taxes immediately. If we are at loss we are to put off their deduction if it ever happens.
What does that mean? When I am placing a trade, I don't look at my prior trades to see whether this will result in a wash sale!