I am an active trader and recently received the form 8949 from my brokerage account, but upon close look the wash sales do not seem correct. Hopefully someone will help me to understand better or confirm that indeed the brokerage made mistakes. The attached is a series of trades of qqq in the beginning of last year (sorry I could not copy and paste the information to this thread directly). The first trade ending on 01/08/2015 is a losing trade. Since the second trade has entry date of 01/09/2015, so the first trade should be a wash sale? Since the third trade (ending on 1/20/2105) is a gain, why it is considered to be a wash sale? Similarly the fifth trade (ending on 02/09/2015) is also a gain but it is labeled by my broker as a wash sale. I suspect that the brokerage made mistakes, but please confirm this is indeed the case. Many thanks.
I have had clients in the past use Taxes Gainskeeper to calculate their wash sales and help with taxes for active traders. They have all liked the service. http://www.gainskeeper.com/ As an alternative, you can speak to an accountant to see if you should consider MTM accounting. https://www.irs.gov/taxtopics/tc429.html Bob
George, Why are you even concerned about wash sales until the end of the year? If you have no "trading vehicle" in which to carry the loss over into the next year then ALL of those interim wash sales during the year you're trying to figure out ARE MEANINGLESS. It's simple: if you have a loss on any stock you trade in December, STOP TRADING IT, wait 31 days from that point forward before trading it again and there will be no "vehicle" from which to carry the loss forward into the new year. If you want to push trading your favorite instrument to the limit then any loss you have in a stock as of Dec 31st, DON'T trade that instrument for all of Jan...presto, no vehicle, no new trade in the new year to receive the final wash. The gubmint doesn't care about intrayear wash sale calculations. WHO CARES what your buy/sell combinations are from month to month except the December to January period? They care about wash sales from the previous year to the next year because that's the point in time where the declaration of gains and losses for the year actually matter. That's it. Don't make it hard on yourself. This was all explained over at fairmark dot com on their forums years ago.
The problem is that I can see some uppity IRS agent getting upset that you didn't mark wash sales in accordance with your broker's statements (even if they are intra-year) and so he audits you.
George, In answer to your original question, the 1st trade was a loss. At that time, you have no "vehicle" to progress the loss (wash) forward in time so long as you don't trade it again for 30 days (duh). Since all of the trades (in the same instrument) you listed following it occurred within the 30 day rule (time between trades), the loss continues to carry forward on ALL of those trades because your smaller collected wins still have not overcome your original loss. That's why your statement lists all of those subsequent winning trades as wash sales (the W is simply marking the most current "vehicle" containing the wash). It's hot potato, George. The potato stays hot across ALL trades if there's still a net loss to consider and you keep trading and recording some loss within a 30 day period. But let's make this super clear. Let's say I lose $10,000 on stock ABC. I win $1 on ABC on the next trade. I have a $9999 loss to carry forward. On my next trade, I make $9,999. I made net $0. [all of these trades occurred within 30 days of each other] There is no longer a loss to consider on this stock for end of year tax purposes. However, the wash sale rule is still in effect and, if I trade this stock again for a loss within 30 days of the last transaction date, I STILL kept the hot potato alive and I have a wash sale. Eliminate the vehicle moving forward for eligibility to "carry" your loss, George, then you eliminate the wash sale from having a place to go. It's as simple as that. The W's on all of your wins after the first loss are correct. The brokerage statement is correct. To make this post really nauseous with anologies, the W mark is your "baggage". You keep changing cars but are carrying the luggage along with you into the new trunk.
It happens all the time because certain brokerages screw your tax information up badly. One way to stop the madness is by using your monthly statements "Total Sells - Total Purchases" was easier to track besides a print out of your daily balances every day for your record because I had a crap brokerage deduct $20k and if not for my meticulous record keeping and print outs they would have walked away with $20k. What is preventing you from using the Monthly Balance approach, are you classified as a "Mark to Market" accounting method for your business so if you do have a great year and not so good, you can do a NOL? Also it eliminates the need for wash-sales. At the time I tried software used to keep track of our trades but that failed too, the volume overwhelmed I generated was too large for their software. Maybe things have changed?
It's not just annoying - brokers can make mistakes and erroneously show wash sales where none exist, and thereby increase your tax liability in excess of your actual net profit. For example, a disallowed loss might not be added to a subsequent wash trade and be lost. I found an example of this once where a handful of low buys and a handful of high sells somehow triggered a wash sale. Not one sell was below the highest buy price, so every trade was closed at a profit! You can manually adjust your 8949 to fix this, but if you don't check, you won't know and are at the mercy of your broker's accuracy. In my experience, they are much more often wrong in the ways that overstate your tax liability than understate it.
Thank everyone for your inputs. Still digesting all the information.... Thank you and ET. Indeed the volume of my trades seem to have crashed the broker's tax software, as for several months they could not even generate a 1099-B for 2015 until a few days ago. The complexity of the wash sale rule is more complicated than I thought. Maybe in Dec I will stop trading spy and trade ES instead.
I have been reading everything I can find on wash sales and I hope to share what I learned so that the thread is beneficial for other ETers. Steve: Thanks. I agree that stop trading the same securities in Dec. is probably the best way to avoid the complication of wash sales. Say switch from a sp500 index based ETF to a dow index based ETF in Dec. About the example that I posted above, I am still confused as I read from the IRS instructions on Schedule D: "Report a wash sale transaction in Part I or Part II (depending on how long you owned the stock or securities) of Form 8949 with the appropriate box checked. Complete all columns. Enter "W" in col-umn (f). Enter as a positive number in column (g) the amount of the loss not al-lowed. See the instructions for Form 8949, columns (f), (g), and (h)."
I purchased one of the two popular tax software for active traders, and it turns out to be a very bad experience. In my twenty years of professional experience, I have never seen such a piece of buggy, hard-to-use software. I have read the user manual, tried to work-around the bugs, in the end, I have not been able to make it to work, and probably will never, and I have already spent more than 10 hours on it. I understand that the pool of retail active traders is not big and so it is not a target market for the big software houses, but it sucks that there is no better options.