Just wanna share another topic on my experience. During the last 2 weeks I traded BAC for 80 trades (both enter and exit). I made a total of Wins $5880 Lost $2160 Overall I made $3720 My Commissions on bundled with IB was $1200 (80 trades x 3000 shares per trade (comm = 0.005)) So I ended up making $3720 - $1200 = $2520 I'm thinking at the end of the year (only for these 80 trades that I made) because of the wash sale rule. I would have to pay tax on my gains which is Gained $5880 x 35%tax = $2058 So I will be making only $2520 - $2058 = $462 ???????????????? People tell my to consult with my Account. Which I did already. All the commissions/tax really bothers me. I did all the consultant with my account already. That is i'm subject to the wash sale rule. I do make many points on my trading but this wash sale really kills me. I'm wondering all you traders here posting your gains making $50,000 - $70,000 ytd but how about your wash sale tax??? You will all be eat up. It's really simple. I did let my accountant elect me as a MTM but i'm still not qualified as a day trader. I need to proof more another year. Well, another year is a lot for all of my money to be burned by this stupid wash sale rule!!! For my commissions, I think I will chg from IB to another broker - a flat fee commission. Maybe MBT or OEConey which I do have a small amount of money with MBT but I don't really like their execution but have no choice. I've calculate the fees on unbundled for IB already, the exchange fees still hurts me a lot. Anybody have any advice????????
I'm guessing u should only pay tax on 2520. everything else should be written off as capital loss or investment cost. Then again, I'm not familiar w/ us tax law.
Robert Green on here may help you. IIRC he has a tax firm aimed at traders. If you get an answer do you mind posting it? Not American but interesting question either way.
This is how the code reads on wash sales. § 1091 Loss from wash sales of stock or securities. -------------------------------------------------------------------------------- (a) Disallowance of loss deduction. In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction shall be allowed under section 165 unless the taxpayer is a dealer in stock or securities and the loss is sustained in a transaction made in the ordinary course of such business. For purposes of this section, the term âstock or securitiesâ shall, except as provided in regulations, include contracts or options to acquire or sell stock or securities. (b) Stock acquired less than stock sold. If the amount of stock or securities acquired (or covered by the contract or option to acquire) is less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the loss from the sale or other disposition of which is not deductible shall be determined under regulations prescribed by the Secretary. (c) Stock acquired not less than stock sold. If the amount of stock or securities acquired (or covered by the contract or option to acquire) is not less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the acquisition of which (or the contract or option to acquire which) resulted in the nondeductibility of the loss shall be determined under regulations prescribed by the Secretary. (d) Unadjusted basis in case of wash sale of stock. If the property consists of stock or securities the acquisition of which (or the contract or option to acquire which) resulted in the nondeductibility (under this section or corresponding provisions of prior internal revenue laws) of the loss from the sale or other disposition of substantially identical stock or securities, then the basis shall be the basis of the stock or securities so sold or disposed of, increased or decreased, as the case may be, by the difference, if any, between the price at which the property was acquired and the price at which such substantially identical stock or securities were sold or otherwise disposed of. (e) Certain short sales of stock or securities and securities futures contracts to sell. Rules similar to the rules of subsection (a) shall apply to any loss realized on the closing of a short sale of (or the sale, exchange, or termination of a securities futures contract to sell) stock or securities if, within a period beginning 30 days before the date of such closing and ending 30 days after such dateâ (1) substantially identical stock or securities were sold, or (2) another short sale of (or securities futures contracts to sell) substantially identical stock or securities was entered into. For purposes of this subsection , the term âsecurities futures contractâ has the meaning provided by section 1234B(c) . (f) Cash settlement. This section shall not fail to apply to a contract or option to acquire or sell stock or securities solely by reason of the fact that the contract or option settles in (or could be settled in) cash or property other than such stock or securities.
I read that link. I'm glad that i'm wrong. I'm glad that my accountant is wrong and doesn't know anything. Think i'm gonna find a accountant who really knows clearly about tax for day traders. Still confused about taxes on my trades. I buy - sell, short - cover BAC and RIMM all day everyday. It's like, if I don't keep track on my trades on a daily basis then it'll be very very very confusing at the end of the week. Bob111 or any of you please advice anything you have from your experience.
I think if you can prove to the IRS that you are a trader not an investor, then the wash rule will not apply. If all your trades were day trades (or even very short-term trades, e.g. only a few days holding), there shouldn't be much difficulty. The sticky part was some investors claim to be traders but they really trade very infrequently. A very simplified test question that IRS likes to use to distinguish between investor and trader: 1. Are you making money by collecting dividends and long-term price appreciation? (If so... you are an investor). 2. Are you making money by taking advantage of the short-term price fluctuation? (If so... you are a trader). But IRS doesn't give any exact timeline as what is considered "long-term" and what is "short-term".
This is incorrect. You have to apply for mark-to-market accounting in order to avoid the wash sale rule. And you can only apply for mark-to-market accounting if you have trader status. See here (under Don't confuse trader tax status with MTM): http://www.greencompany.com/EducationCenter/GTTRecTaxTreatmentTraders.shtml
Please read this entire page: http://www.fairmark.com/capgain/wash/wstrader.htm It talks about taking a "winter vacation." Now in your particular case (since your trades are mostly profitable), you could probably get away with not taking this vacation. I.e., if you follow your trade history this year and keep track of the cost basis after wash sales, your profits will wipe out any deferred wash sale losses. However, suppose you have a bad December trading BAC and RIMM. Then all of a sudden your tax calculations become much more complex and your wash sale losses could defer through to the next tax year. For me, the peace of mind of taking a trading vacation was worth it. It might not be for you. And you can always make someone else (i.e., computer software or your accountant) do your wash sale calculations. It's up to you.