Hi, I'm freaking out and literally shaking right now. I did a ton of day trading this year. Probably anywhere from 1-5 trades a day every business day in 2012. Buying and selling on margin upwards of $500,000. I use scottrade and have been using the "Gains/loss" center under the "my account" heading to track my gains/losses. My account's break even point for this year was $110,000. (made many cash deposits into the account throughout the year) Earlier in the year I lost over 50k, but battled back to recoup all losses and also made an additional 40k. Then I lost the 40k and a little more right at the end of year. I remember checking on Dec 31st the gains and loss center and seeing I had a loss of around 6k. My account balance was 104k on this date and as stated above my total deposits in the account had me at a principal of 110k. 110k-104k = 6k loss. Fine that's what I expected However, I just looked at the gains and loss center last week for 2012 and it is now saying I MADE $98,000. This is apparently due to disallowed wash sales that I was not aware of. I was trading a ton of HLF this December and the beginning of January. Multiple trades in and out short and long. Am I absolutely fked here? I can't pay the IRS taxes on $98,000 in gains when in reality I LOST 6k in 2012. How can this be??? Do I need to hire a tax attorney I'm really freaking out here as I will be penniless if I owe the IRS taxes on this amount. I don't' have it in 2013 I had a horrible stock trade that cost me $60k so I'm down to about $35k to my name. I haven't heard back from my accountant yet so wanted to post this on here. Please tell me something as I'm losing it right now. Thank you
The $98K is probably just the combined sells. You have to net out the P/L against where you bought (basis). Unfortunately that is every single trade. Wash sale rules are only to not allow someone to take a big loss and write it off, then buy back the stock. Just make sure any trade you lost on in December, that you do not buy back the same stock for at least 31 days. edit: Oops, I just noticed you traded a bunch of HLF in Dec AND Jan. Uh oh...you may have to defer losses to other years. In any case, please talk to a tax professional very soon. Good trading to all.
use tradelog for accounting, it's such a relief. btw, i think you can only write off 3k unless you're an entity / filled out some paperwork / have gains in a previous year. i am NOT a tax attorney nor do i play one on tv.
i'm not sure if you have checked out trader status but the trader status irs allows mark to market and wash sales wouldn't apply (check with accountant). google trader status versus investor status irs. from internet: For traders, trading is their day job. It puts bread on the table and pays the rent. As such, the Internal Revenue Service treats it like a business, offering tax breaks in two key areas: Capital gains and losses. Typically, your losses are limited to the amount of your capital gains, plus an additional $3,000 a year. But traders have the option of taking an unlimited amount of losses, which can be used to offset any income. Business expenses. Because trading is their business, traders can deduct 100% of their expenses, including the cost of their computers and software, tax advice and instructional materials on investing. The wash sale rule... Investors and regular Traders are both subject to the wash sale rule. M2M Traders and Dealers are generally exempt from the Wash Sales Rules for those securities used in their business. This IRS rule (§1091 & §267) limits and defers the current deduction of losses in actively traded securities if you buy and sell substantially the same security within a 61-day window (also referred to as being from "30 days before the sale until 30 days after the sale"). The good news is that Securities Traders properly electing mark-to-market under IRC §475 are not subject to the above wash sale rule on those securities covered by their mark-to-market election. i.e. any of their separate unrelated investment securities will continue to be subject to the wash sale rule.
nah..don't worry about. are all tax forms are out already at scottrade? i doubt it. you cant' rack up 98K in"profits" via wash sales. from last year they(IRS) have different report "system". watch this- Topic: The New Kid in Town: Form 8949 Replaces the Schedule D Gain/Loss Worksheet-20120305 2130-1 https://interactivebrokers.webex.co...pname=url0108l&entactname=/nbrRecordingURL.do then most likely you would be able to read your statements "properly" don't worry
yeah..poor guy in red already. you know how much is going to cost him? probably another 6K let him watch webinar first. then he would understand, how to deal with it. i had same "heart attack" last year,when i got my forms. same exact thing. only difference was half a mil or so in "profits".
If your gain is from wash sales, sounds like you should consider electing trader tax status (assuming you qualify for it) which allows you to mark to market gains and losses. It isn't easy to have such a large discrepency from wash sales alone. You can only get it if you realized losses on positions and then initiated the position again within 30 days, and then held that position over the new year with a cost basis that had been adjusted up. If you had been doing short term trading and liquidating everything before the year end, wash sales would not be an issue. I'm not a tax professional. I've been talking to tax professionals for my own situation.
I had a problem many years ago where I had a tax bill on a gross of about $12mm (an actual bill from the IRS telling me how badly I had screwed up the previous year's returns), and I didn't even make money that year. I called the IRS, And the person simply confirmed what I thought when she told me the gross sales is what is reported by the broker. It was up to me to report the offsetting buys. A local small town accountant and a couple hundred bucks made everything good. And the wash sale rule didn't come into play at all. Have a cocktail and relax.