For example, I just had 30 contracts of NT-MF(Nortel Jan 30 puts) that I sold in December expire worthless last week. Are 100% of the proceeds of this sale considered ordinary income? Or since I never closed are you saying they may not be fully taxable?
the reason i am suggesting you hire an accountant is because tax laws are not simple. legally i cannot give you any advice. all i can do is relate to you my experience and indeed make the suggestion that you hire proper tax counsel.
my experience tells me that any option trade has two sides a sell and a buy. unless these TWO sides are completed the transaction is open or pending.
as i indicated in the previous post, the worthless expiration does close the trade since your obligation is extinguished. i.e. you no longer have any obligation upon the expired contract and therefore the premium is yours.
whatever premium you received is 100 % GROSS profit. from there, you may have some losses (in other trades), you could offset the gain. in addition you may also have expenses that you can put agaisnt the gains.
now...
in term of "what is income" ? there are:
"ordinary income"
"investment income"
"capital gains" (short and long term)
my understanding is that all of the above are treated differently and taxed differently, so for you to call it... "ordinary income" i am not sure that such is correct... you really need to talk to an accountant.
it also matters whether you are a "trader" or an investor, as to how the income and potential deductions are treated.
from the volume of trades i see... personally i would not even TALK to the irs unless i had a tax accountant advising me. further i would be crazy to prepare my own taxes, i do the basic prep work and then i give it to the tax guy.
My brokers statement lumps open and closed option proceeds together with Muni-Bond income under "Transactions we do not report to the IRS". Fortunately I have always reported the options portion of this as ordinary income, so I am clean..BUT...maybe I am being too conservative.
I have looked through the papers that my broker sent me, and in spite of the fact that i have "open" transactions, these are not even reflected on the 1099-B simply because they are not closed transactions.
so... i honestly do not follow the transactions that you are referring when you say that the broker makes a statement such as "we do not report to the irs."
"tax free" muni bonds (or similar) obviously would not be reported since they are "tax free" the question then becomes are they tax free from the federal, state and local taxes... or just federal (sorry i am not familiar with tax law related to munibonds)
i hope that you have not reported as "income" the mere proceeds of selling an option.... a i said first you have to determine if there is a gain or a loss.
good luck
p.s. seriously... ask a tax attorney. or tax accountant |
