Lots of wash sales for non MTM traders a problem?

Discussion in 'Trading' started by IronFist, Mar 19, 2007.

  1. Monday
    Morning - buy 500 xyz for $20. Sell for $19.
    Noon - buy 500 xyz for $20. Sell for $21.
    Afternoon - buy 500 xyz for $20, sell for $19.

    Morning - buy 500 xyz for $20. Sell for $19.
    Noon - buy 500 xyz for $20. Sell for $19.
    Afternoon - buy 500 xyz for $20. Sell for $24.

    You've just committed a few wash sales over the course of two days. How big of a pain is this for tax time? What about the people who do hundreds of trades per day. Some of them have to be losers. How do you deal with wash sales?

    I've been trying to avoid wash sales like the plague (ie. sell for a loss? Don't touch that stock for 30 days regardless of how many perfect setups it makes).
  2. When I used to trade stocks, I understood that wash sales only affect your total tax bill if they straddle the 31 days that includes the end of the (tax) year. At all other times, it only affected your basis, not your P&L.

    If you are paying quarterly estimated tax payments, you would also need to consider the affect on your estimates of quarterly income.

    Of course you should discuss this with a qualified tax professional.
  3. But with multiple wash sales, even if it's only affecting your basis, wouldn't that get downright impossible to computer after a few wash sales/day for a few days?

    I want to get this figured out before I jump into making mutiple trades a day (assuming I lose money on the first one).
  4. Big AAPL

    Big AAPL


    Unless I am mistaken, it's really only a matter of listing each trade seperately, even if it is the same issue on the same day. The wash sale rule simply prevents you from taking a straight loss if you purchase the same stock within 31 days, after taking a loss on the initial trade. A paperwork pain in the ass is what it boils down to. One day the IRS will get their act together and streamline the tax reporting problems for the trading community. Here is an example direct from Pub 550 of the IRS website:

    Example 1. You buy 100 shares of X stock for $1,000. You sell these shares for $750 and within 30 days from the sale you buy 100 shares of the same stock for $800. Because you bought substantially identical stock, you cannot deduct your loss of $250 on the sale. However, you add the disallowed loss of $250 to the cost of the new stock, $800, to obtain your basis in the new stock, which is $1,050.

    Hope this helps.
  5. I know what the rule is, I just want to know how much of a mess it's going to be if I trade the same stock 5-10 times a day... every day. :eek: Some of those (half-ish) will obviously be losses.

    I don't know how the scalpers do it.
  6. GTC


    IronFist, You may want to go to a broker that will calculate wash sale for you. Otherwise, you can write a program, or search ET.
  7. Big AAPL

    Big AAPL


    Well, I've done it. Not on the scale that you obviously will be (ie: 5 to 10 RT's per day), but the theory remains the same. Each sale is listed on a seperate line and the cost basis from each loss is carried over to the next trade of the same issue. I'm assuming you are well aware of that.

    GTC is correct in suggesting that you may want to get a program that allows you to import that data to save you the time from entering all that information.

    What kind of a mess will it be? A big one if you plan on entering all those trades manually. But don't let that stop you from trading your plan.

    Maybe a true scalper can chime in and give some firsthand advice, or better yet, recommend a program that does this as painlessly as possible. One thing is for sure, E-Filing is the way to go in this situation.

    Good luck!
  8. Bump for "true scalpers" to reply?
  9. whatisis


    I use Gainskeeper to track all my accounts. There are probably similar websites/programs which do the same though. It does a decent job of reconciling transactions. It will notify you if it finds discrepancies. I subscribed mainly for it's ability to generate the schedule D and detail. I'm not trading MTM, so my tax guy is thankful.

    Talk to your Broker, they usually have some website/program they will recommend and may have a discount thru them.
  10. I use Scottrade which has Gainskeeper on its website. However, if I start doing a lot of intraday trades I'm going to switch to another broker that is less than $7/trade.
    #10     Mar 23, 2007