This is exactly what I did. I traded HLF heavily in December but entered January flat. I always sell my positions the same day. I rarely hold over night. I remember on Jan 2nd I made 10k on HLF. Then in the next week took major losses on this name. I not only messed up my tax situation but also my life. I am a salaried worker and active trader on the side. Lost an engagement ring, house, car, and any other future purchase as I'm basically at square 1. Dangerous game and I couldn't control it. I just hope I don't owe taxes on 98k or that IS the nail in my coffin.
I don't mean to go off topic but did you go flat after making profits on HLF and then short it again starting Jan? I'm surprised it went up as violently as it went down like a v. I honestly thought only an LBO or massive buy back would get it back up, turns out company couldn't even buy back a single share until all non-public info was out early Jan.
I have couple of question if anyone can answer: 1) I trade only futures, then does it matter if I elect for trader status or not? Asking because it seems getting exemption from the wash sales rule is the primary reason for electing trader status. Fyi, my main source of income is trading. 2) If I make money in a year trading futures, and don't file my taxes then IRS will charge me with something like evading taxes. However, if I lose "pocket change" money in a year trading futures (say I lose 100$). So, I don't owe any taxes to IRS. In such a scenario, I might not want to file taxes - simply because the carry forward deduction is insignificant compared to what it would cost me to file my taxes and also because it is so cumbersome. Then am I knowingly or unknowingly committing a crime? Is it possible that that IRS will later do an audit and slap a big fine on me saying I didn't file my taxes in time? Thanks.
Disclaimer: I am a trader, not a tax expert. In my understanding, there are at least three benefits to electing Section 475 (MTM accounting), the first two of which do not apply to futures and broad-based index options: a) no wash sales b) no itemized listing of all trades c) loss carryback If you omit a small loss from your tax return, it is unlikely the IRS would object. If they did object, the most likely action would be a negligence penalty. Tax evasion is a felony that requires a jury trial, etc., and is only charged when there is significant money at stake. A few years ago, the IRS published a newsletter in which they stated their policy that in general, if you file on time and pay the minimum tax due, they do not attempt to assess penalties.
If you are worried about simply not filing but you know that the amount of income is below even your standard deduction say $4k-$5k then i wouldn't worry i've done it before. Besides if you don't have enough taxable income that year tell them go ahead and audit you, do my taxes for me and you still don't owe. There is only penalties when you owe and don't file not when you don't owe and don't file (not however true in california; they looked at me like a criminal went i went one day in person and said i didn't file but didn't have enough income for a number of years; lady said shook her head said didn't matter bad bad bad). Left california and still to this day get letters in arizona from them saying hey why no file in 2002, 2003... they treat you like you were born in that state and must pay until you die even if you leave the country...so greedy they are. you can google trader status verus investor, it sounds better to be classified as trader unless you have a day job then i guess it would be next to impossible since one of the standards they use is where does the majority of income come from your dayjob or your trading activities.
I don't understand why so many put themselves under this pressure. Just trade with stops, risk what you are willing to lose, if you get taken out reevaluate your trade. Stop chasing, revenge trading, making trades based on other peoples' analysis. No one feels sorry for you, no one cares if it's your nail in your coffin or if your life is over. Did this to yourself.
To you and Metameta both- Thank you very much. Your answer was very informative and has been helpful. At least they won't penalize me in any significant way is good to know. As a matter of fact, I did have a pretty big loss like 10k or so in my first year of trading (3 yrs ago) and I didn't file for taxes as I was devastated after the loss and didn't want to throw good money after bad by spending 1000$ more with a CPA to file the taxes. Also, it sounded way too complicated at that time. Now, I am just wondering if I can go back to IRS and can claim any sort of tax advantage based on that loss that happened 3 yrs ago? Unfortunately, the loss happened in Cal country Can you elaborate a bit on loss carryback provision? Since I have not elected for trader status, does it mean that I cannot claim any kind of loss carryback advantage? Thanks again.
Itemize every trade with the cost basis. It's a pain, but works. The IRS did that to me a few years ago. $500,000 in gross sales and sent me a bill saying the full amount was taxable. Then came up with a million "timely filing" nonsense reasons of why they would not accept my brokerage statements showing cost basis. Essentially, the IRS wants gross amounts on the 1099 because they know a ton of lazy people will just pay the bill. I forget now, isn't wash-sale a rule on a buy and sell around the end of the fiscal year to hide tax obligation? That is not applicable in daytrading.
First, the IRS will only allow refunds if you are filing/amending within three years of the original filing date. They may have a similar requirement for filing/amending returns when the taxpayer wants to record a loss and begin to carry it forward. I think you need to check into the latter scenario. Second, assuming you're still within the filing windows, you're making this harder than it is. You don't need a CPA to assist you with the tax treatment of section 1256 contracts because they are a piece of cake. You get one net number on your broker's 1099. You enter that into the tax software on Form 6781, it does the 60/40 split, enters the results into Schedule D, and you're done. Spend $30 to $40 for the federal tax software for each of the years you need to catch up on/amend. Use TaxAct, Turbo Tax or HR Block. They're all about the same - just buy a brand and stick with it so the personal information and Schedule D data transfers are seamless (they all claim to import data from their competitors, but why complicate things). Bottom line: Spend a hundred bucks or so on software, install it, fill out the most distant year first (e.g. 2009) and you might be surprised at how little time it takes. You'll probably spend more time installing the software than entering data. P.S. You don't need trader status to utilize the loss carry forward and back 'features' of Section 1256 contracts.
That is my understanding, but I don't know the exact date that would be your deadline. Filing an amended return isn't as complicated as it sounds, in my opinion. It's a 1+ page Form 1040x for each year. You can write off the $10k loss against regular income up to $3k per year. If you have trading gains, you can write off the as much of the loss as you have gains. You carry the rest forward indefinitely. Carrying a loss forward isn't all that complicated either. I have done an amended return and a loss carryforward. I also agree with Brighton that most of us should be able to do our own taxes with the popular tax software. I prefer TaxAct. Doing taxes is brain-dead simple compared with making money trading. You probably shouldn't consider electing Section 475 accounting without good tax advice.