I am not a trader. I tried trading in 2004 and lost about 35k in a short amount of time. I just don't have the stomach for trading. The problem now is that I recieved a letter from the IRS today stating that I did not claim this on my taxes for the year 2004. Maybe I am naive, but since I didn't need the deduction, I did not claim my trading since my losses were over 35k. I used E-Trade as my brokerage. Any suggestions would be appreciated. Thnk you.
Step 1 : consult an accountant Step 2 : see step 1 I am not an accountant...but I don't think they can force you to file them. And what's with "didn't need the deduction"? If you have that much money, would you mind sending me some?
not clear of what is your tax question but you can always file the tax amendment. And since when IRS bother to tell you whether or not you forgot to claim your loss. In general you should filed your loss and carry it over to the subsequence years to claim against any gain.
Is the IRS requesting action on your part? Or are they just notifying you of an adjustment made to your return by them to account for the 1099 losses sent to them by Etrade? In other words, what is the problem?
Thanks for the replys. I haven't had a chance to talk to my accountant. I will be getting together with him next week to do our taxes. Reason I don't have many of deductions is because I have a lot of kids. We usually get most of our paid taxes back. What I got from the IRS was a listing of all the sales that I had made from my E-Trade account in 2004. It didn't show what I had paid for the stock, just what I had sold it for. Perhaps they should have included some type of a cost basis that would have shown my net loss.
As far as I know it is tax payer's responsibility to prepare the capital gains & losses report. It seems to me that that is exactly the reason why they have contacted you. IRS only has your sell proceeds which were provided to them by your brokerage firm.
E*Terd provides a 1099 which is in 2 parts. One section of Purchases, and a second with sales. It is your responsibility to make a spreadsheet matching the BUYS and SELLS in the format of a Scedule D. In an ideal world you should be able to feed this information into a program like MS Money or TurboTax. As far as The IRS is concerned, your cost basis on the Sales is ZERO until you provide them with your actual cost and prove otherwise. Good Luck.
Complete a Schedule D for 2004 showing the purchase price (you provide from your records) vs the sales price which your broker provided on the 1099 to you and the IRS. You should end up with the $35K you lost. File an amended 1040 (1040X). Since you were trading all your losses were probably short-term capital losses( trades completed in less than a year). If you stopped trading before December 31st you will not need to worry about "wash" sales. Technically you need to compute them but they will net out the same as long as all your positions were closed by Dec 31st. You can deduct $3K a year from your income. If you have no "capital" gains (over the next 12 years) you'll carry the diminishing $35K forward each tax year applying $3K against regular income each year until the carry-forward goes to zero. If you use an accountant verify with him/her. Jack
Thanks. That is exactly what their letter states. Hopefully I will be able to download the 1099 that shows my purchases.
Other than the mark-to-market election (which is too late), does anyone know of other tax strategies to accelerate the deduction? Thank you.