Does anyone know if you can ignore the calculations for wash sales if they have no effect on taxes? In other words, if you stop trading your usual stocks on Thanksgiving through the end of the year and so that there are no wash sales effects, do you still have to show all the calculations on your tax return? Do they even qualify as wash sales if there is no net effect?
They are wash sale violations even if they have no effect on your taxes. Technically, they should be reported correctly. However, for many years I did as you suggest, and there were no repercussions. I did not and still do not believe that the IRS is going to waste thier time making one fill out a longer Schedule D only to pay the same amount of tax. They have bigger fish to torture, errrr, fry. However, now that I trade much more and have lots of carry over wash sales, I obey the letter of the law since the return's net is affected. But that's another story
IB properly accounted for my wash sales when I imported the transactions into Turbo Tax. A virtual no-brainer.
The problem I have is that I have multiple trading accounts right now so I am getting reports from multiple brokers. I have to consolidate them all into one Excel spreadsheet and then manually calculate the wash sales. This seems like an extraordinary waste of time when the net is exactly the same.
spindr0 is correct. Even if it doesn't change your tax, you still need to account for wash sales. To do this I have been using, for the last couple of years, simply trackhttp://www.vbssol.com. It's not straight forward, but it does the job. It generates a schedule D or lets you export the transactions into a format recognized by tax preparation software. To import transactions, excel comma separated is just fine, so you can put all your transactions together into a single excel file.
dont you get to take your loss from a wash sale and add it to you cost basis on your next trade(assuming within 30 days)? Doesnt that in effect make the wash sale rule pointless?
Yes and no. If the violation and final closing transaction occurs within the calendar year, it has no effect on one's return. But if the 61 day wash sale period overlaps the end of the year then the gains for the earlier year are increased as the incurred loss is carried forward to the next year.
IB mostly handled correctly, except the loss of shorts. After I imported to TT, I had to manually adjust cost and base. But, the bottom line is still the same.
That's exactly my point. If there is no loss carryforward to the cost basis of the next set of shares because you have sold them all more than 30 days before the end of the year, there is no tax consequence and the net effect is exactly the same whether you do a bunch of cost basis calculations or not. So, do you need to do the pointless calculations? I called the IRS to find out and they didn't seem to understand the question. They told me to contact a CPA and no CPA that I have spoken to knows the answer or is even familiar with tax rules for day trading. The IRS person also told me that the tax codes (apparently some giant book) are not available to the public but only to CPA's. How on earth are we supposed to do our taxes without having the rules available? Apparently there are six ways to calculate the wash sales? So, we are required to find some highly specialized tax CPA and hire them to do our taxes? I found errors in my returns every time I used a CPA before and had to have them fix them. That's why I started doing them myself. I figure I am more likely to make a mistake doing complicated carryforwards than to net it out.
There is always a discussion about wash sales around tax time on this site, so you could probably go back and search, but the fact is, that you do need to do the wash sale adjustment, even if the net effect is zero. As some have pointed out, if no trades have taken place one month before and after the year's end, IRS will tolerate you not doing the wash sale calculation. Check also our resident tax expert "Robert A. Green" posts, and its site http://www.greencompany.com/EducationCenter/GTTRecWashSale.shtml