I think some are confused into believing that because brokers don't report option income to the IRS, it must be tax free. That's just to good to be true.
i am not a tax attorney nor an accountant. i suggest that if you trade options often you seek advice of counsel.
now....
from my own experience (and from the large list of transactions i have here in front of me reported under form:1099-B the closed option trades ARE reported to the IRS. the pages are titled "supplemental information" (for form 1099-B). these are divided in two segments:
1. equity trades i.e bought and sold (closed transactions) and
2. options trades i.e. bought and sold (cosed transactions).
i believe you are getting confused by labeling "option income" what it really are the proceeds of the "sell" part of your trade. this means you have: sold to open the closing trade would be buy to close
in other words:
a complete trade is formed of a "buy and a sell" --when you are going long-- or a "sell and a buy",-- when you are going short.
if you sell either calls or puts, (regardless if these transactions are "covered" or "naked") the "proceeds (NOT INCOME), is only 1/2 of a transaction. these transactions are "open" and will not be reported, simply because such transaction has not trigger neither a realized loss, nor a realized gain.
These trades will be reported upon you closing them. closing these trades will take place when:
1. buying back the contract (hence "closing" the position, at which time you either book a profit or a loss depending in the particulars of each transaction)
2. expiration. either:
2.1. worthless --at which time you "close the option position" and if you are the seller, then a 100 % profit is "booked")
2.2. assignment (shares are called away) in which case you also book a 100 % profit in the option part of the transaction. the fact that you are forced to sell the shares because you were assigned, triggers a different transaction that relates to the underlying (the stock you wrote the option on). depending on your basis and the strike price at which you sold them. this sale of the shares will also trigger either a gain or a loss and will also be reported.
i hope i explained myself. the key is to understand that having sold an option, the $$$ that is credited to your account is NOT income. (at least not yet, only until you close the trade).
the above is my opinion based on personal experience. DO NOT base yourself on the above. DO consult a tax professional since the tax laws are so confused, i may have missed something.
the IRS is not as dumb as we wished them to be -GG-
for additional info and even submit this and other questions go this site:
schaeffersresearch.com |
