Wash sales

Discussion in 'Taxes and Accounting' started by invortex, Dec 9, 2017.

  1. invortex


    I am new in this. So bear with me. If I only follow a few stocks and keep trading in and out of them, like so many traders do, then many losses are deemed wash sales? How do others do this? Thanks in advace
  2. Overnight


    Yes. Gotta' wait 30 days to avoid the wash-sale washout. IRS can go suck an egg.
  3. invortex


    Thank you for your response.

    Then how do you just follow a few stocks and trade in and out of them? I mean if I had to wait 31 days between trades, then I wouldn't be able to use this strategy. How do others do it?

    OR maybe there is no strategy like this? I thought for sure there are some traders who only trade a few stocks.
  4. Overnight


    I don't trade stocks, I only know the basics of wash-sale rules. I think the sell and repurchase has to be in the same stock for the wash to occur. Maybe ask in the taxes/accounting section for a faster response.
  5. comagnum


    How to Avoid Wash Sales
    As an active trader, you may not be able to avoid each and every wash sale that may come along due to the fact that you are in and out of trades frequently and some losses are inevitable. Yet, you really don't have to worry too much about the net effect of wash sales until year end.

    Here are three simple rules to keep in mind that can greatly reduce your risk of having some or all of your losses disallowed for the current tax year and deferred to a later tax year:

    • If you take losses in December, don't buy back the same stock for 31 days.
      If you take losses in any stock in December, be sure NOT to repurchase the same stock (or an option on that stock) for a period of 31 days. If you do, your losses will be deferred to a later tax year. You won't permanently lose the loss, it will just move forward and you will have a greater tax consequence in the current year.
    • Close out any open positions at year end that have accumulated wash sale losses.
      If you have any open positions at year end that have wash sale losses attached to them, these wash losses must be deferred to a later tax year. To avoid this unpleasant situation, close the open position that has a large wash sale loss attached to it and do not trade this stock again for 31 days.
    • Avoid trading the same security in your taxable and non-taxable IRA accounts.
      Because of the severe nature of IRA wash sale adjustments, it is often best to avoid any situation where an IRA wash sale could be triggered. Which means not trading the same security (or options on that security) in both your accounts. If you must trade the same security, be especially alert to losses that occur in your taxable account and avoid any new opening trades for 30 days in the IRA.

    Advice for Active Traders
    Many web resources advise you to stop trading a stock for 31 days any time a loss is incurred to avoid triggering a wash sale adjustment. However, as explained above this is quite unnecessary.

    The only critical time period is in the months of December and January where losses realized in December, or wash sale losses attached to open positions can turn around and bite you! But if you have the right tools, you can easily spot these conditions, take the necessary action, and lessen your tax bite come April 15.

    So keep trading those stocks and options if you think you can make a profit! Take your losses as they come. Stop trading them when you realize that you are no longer profitable in that equity, or if you are about to take a big tax hit at year end.

    If you absolutely, positively must trade that losing stock or want to hang on to open shares with a large wash sale loss attached to them, be sure to have a good reason for doing so and be aware of the tax consequences of your trading. The more knowledge that you have at year end, the better equipped you are to make such a decision.

    vanzandt likes this.
  6. spindr0


    A wash sale is only a problem for the 30 days before December 31st and therefore becomes a carryover violation. If you are completely out of the stock and/or options for 31 days after any losses realized in December (including carry forward losses from earlier in the year), it has no impact on your taxes.

    If you trade serious numbers, you can apply for Professional Trader status from the IRS. If granted, you won't have to deal with wash sales and you'll just use the easy MTM accounting (EOY to EOY)

    If your broker is reliable, his EOY statement will break down all of this for you. I have not found my broker to be reliable so in heavy trading years, I have used Tradelog for my tax accounting. Gainskeeper is another popular TA program that I know of.
  7. invortex


    Thank you for this information. I currently have a loss of 17K in SOXL and it is a wash sale. I am thinking the stock will go up in Jan, so no need to sell now. But I wont be able to take my loss this year and have to defer my losses to next year, correct?
  8. invortex


    I am using Fidelity and Schwab.
  9. comagnum


    I would no get tax advice from anyone other than a tax professional that is experienced with traders taxes. $17,000 sure justifies the somewhat small expense of involving a tax pro you can meet with face to face with you to find the best solution for you. Just make sure to screen them out over the phone first by asking them a few wash sales rules, the good ones will gladly answer your questions and the bad ones will show their cards right away by declining to answer or by giving the wrong answers.
    Last edited: Dec 9, 2017
    DeltaRisk likes this.
  10. invortex


    I am calling Green Trade tax that is advertised on this site. Do you have any experience with them? thanks again for your message.
    #10     Dec 9, 2017