I do understand how to calculate wash sales I was an accountant for 20 plus years. What I could not understand was how IB could come up with a 54 K wash sale for my QQQ trading. Bottom line for me was I can use their form 8949 numbers , the net effect for me was my qqq loss for the year of $1800 was not allowed. This is a small amount so I donât need to go back and figure out what the correct wash sales should have been. My concern for 2012 is because their 2011 calculations were so off the wall what will it look like in 2012 .
I can see scenarios where you rack up 54k in wash sales that are disallowed. If IB says they are right after checking it, then either I would accept it or find a way to double-check the results, i.e., TradeLog. Personally I find non-trivial wash sale calculations so involved (especially if you are trading the same security day in and day out), that I would find it worth it to offload that problem to someone else.
Those numbers ($54k total and $1800 net) sound realistic. Consider a thought experiment: You trade only QQQ every day. Assume half your trades are losses. Assume that at the end of the year you broke even. *All* your QQQ losing trades will be wash sales, and the total will certainly be in the tens of thousands, perhaps millions. Yet most of those trades will not affect your income. They will affect tax reporting however. The only wash sales that actually affect your income are when the repurchase is sold in a different tax year. That amount ($1800 in this example) must be deferred. The rest of the wash sale losses get absorbed in the basis adjustment on the repurchase. One of the things that's a bit confusing is the IRS statement that wash sales are "disallowed". They're only disallowed on that transaction. That doesn't mean the loss cannot be recovered on a subsequent trade.
When I was trading stocks/ETFs I never did my own taxes, so I know very little about this "wash sale" horseshit. But, let me propose an example to ask a question: If a person traded SPY from January 2011 through November 2011, then did not trade anything in December 2011, would this eliminate the need to deal with the "wash sale" fiasco?
That's an excellent question. In your example, you would likely have lots of wash sales, yet none of them would affect your taxes. But under the new rules, you would still have to report those wash sales. Your total wash sales disallowed would exactly equal the sum of all your cost basis adjustments for a net tax effect of zero. The IRS got all pissy starting with the 2005 (I think) tax year. They wrote in an IRS newsletter, entitled Headliners, that they wanted to see all individual trades with the tax return and not "on request". Many people saw that article, but I suspect few noticed a interesting comment in the Q&A section later in the publication. In answer to the question "what if I don't provide the detail", the answer was that in general if you file on time and pay the proper amount of tax, the IRS "usually" does not assess a penalty. So not supplying the detail might have gotten you a dirty look a few years ago. I wouldn't try it today. I use IB as my broker, and I am finding their reports to be accurate enough, even if imperfect.
i guess you played with trades < 10M. here is my attempt to file in one line: like i said above-neither of them will allow you to file in one line,if your proceeds (or basis) >10M
Bob: I did play with multi-million $ lines, not a single line. Why not try one line for "covered", one for "uncovered", one for "wash", and one for "other". Or just split them into "Covered 1", "Covered 2", etc. Jack