OT: TAX FACTS (Individual Returns):
Estimated Tax:
"Generally, you should make estimated tax payments for 1999 if you will owe tax of $1,000 or more, after withholding and credits, and the total amount of tax withheld and your credits will be less than the smaller of:
90% of the tax to be shown on your 1999 tax return, or
100% of the tax shown on your 1998 tax return, if your 1998 tax return covered all 12 months of the year. However, if your 1998 adjusted gross income exceeded $150,000, or $75,000 if you filed a separate return from your spouse, then you must pay 105% instead of 100% of last year's tax".
irs.ustreas.gov
"For estimated tax installments due after December 31, 1997, for individuals with adjusted gross income equal to or less than $150,000 ($75,000 if married filing separately), 100 percent of last year's tax; for taxpayers with adjusted gross income above that threshold, the following percentage of the preceding year's tax must be paid:
If the preceding year begins in: Percent
1997 100
1998, 1999 or 2000 105
2001 112
2002 and thereafter 110"
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Settlement Dates:
"Securities traded on an established market. For securities traded on an established securities market, your holding period begins the day after the trading date you bought the securities, and ends on the trading date you sold them. Ignore the settlement dates for tax purposes.
Example. You are a cash method, calendar year taxpayer. You sold stock at a gain on December 30, 1998. According to the rules of the stock exchange, the sale was closed by delivery of the stock 3 trading days after the sale, on January 5, 1999. You received payment of the sale price on that same day. Report your gain on your 1998 return, even though you received the payment in 1999. The gain is long term or short term depending on whether you held the stock more than 1 year. Your holding period ended on December 30. If you had sold the stock at a loss, you would also report it on your 1998 return."
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"Options:
Options are generally subject to the rules described in this section. If the option is part of a straddle, the loss deferral rules covered later under Straddles may also apply. For special rules that apply to nonequity options and dealer equity options, see Section 1256 Contracts Marked to Market, earlier.
Gain or loss from the sale or trade of an option to buy or sell property that is a capital asset in your hands, or would be if you acquired it, is capital gain or loss. If the property is not, or would not be, a capital asset, the gain or loss is ordinary gain or loss.
Example 1. You purchased an option to buy 100 shares of XYZ Company stock. The stock increases in value and you sell the option for more than you paid for it. Your gain is capital gain because the stock underlying the option would have been a capital asset in your hands.
Example 2. The facts are the same as in Example 1, except that the stock decreases in value and you sell the option for less than you paid for it. Your loss is a capital loss.
Section 1231 transactions. If you hold an option more than 1 year to buy or sell property that is (or would be) used for business or to produce rents or royalties, the gain or loss on its sale or trade is a section 1231 gain or loss. For information on its treatment, see Section 1231 Gains and Losses in chapter 3 of Publication 544.
Option not exercised. If you do not exercise an option to buy or sell, and you have a loss, you are considered to have sold or traded the option on the date that it expired.
***Grantor of option. If you grant (write) an option, how you report your gain or loss depends on whether it was exercised.
If you are not in the business of granting options and an option you grant on stocks, securities, commodities, or commodity futures is not exercised, the amount you receive is a short-term capital gain.
If an option requiring you to sell property is exercised, you add the option payment to other amounts you receive to figure the amount you realize on the sale of the property. Whether your gain or loss is capital or ordinary is determined by the type of property you sell.
If an option requiring you to buy property is exercised, you reduce your cost basis in the property by the amount of the option payment.
Section 1256 contract options.
Gain or loss is recognized on the exercise of an option on a section 1256 contract. Section 1256 contracts are defined earlier under Section 1256 Contracts Marked to Market.
Cash settlement option. A cash settlement option is treated as an option to buy or sell property. A cash settlement option is any option that on exercise is settled in, or could be settled in, cash or property other than the underlying property.
How to report. Gain or loss from the closing or expiration of an option that is not a section 1256 contract, but that is a capital asset in your hands, is reported on Schedule D (Form 1040).
If a purchased option expired, enter the expiration date in column (c) and write "Expired" in column (d).
If an option that you granted expired, enter the expiration date in column (b) and write "Expired" in column (e).
Calls and Puts
Calls and puts are options on securities and are covered by the rules just discussed for options. The following are specific applications of these rules to holders and writers of options that are bought, sold, or "closed out" in transactions on the Chicago Board Options Exchange. (But see Section 1256 Contracts Marked to Market for special rules that may apply to nonequity options and dealer equity options.) These rules are also presented in Table 4-1.
Calls and puts are issued by writers (grantors) to holders for cash premiums. They are ended by exercise, closing transaction, or lapse.
A call option is the right to buy from the writer of the option, at any time before a specified future date, a stated number of shares of stock at a specified price. Conversely, a put option is the right to sell to the writer, at any time before a specified future date, a stated number of shares at a specified price.
Holders of calls and puts
If you buy a call or a put, you may not deduct its cost. It is a capital expenditure.
If you sell the call or the put before you exercise it, the difference between its cost and the amount you receive for it is either a long-term or short-term capital gain or loss, depending on how long you held it.
If the option expires, its cost is either a long-term or short-term capital loss, depending on your holding period, which ends on the expiration date.
If you exercise a call, add its cost to the basis of the stock you bought. If you exercise a put, reduce your amount realized on the sale of the underlying stock by the cost of the put when figuring your gain or loss. Any gain or loss on the sale of the underlying stock is long term or short term depending on your holding period for the underlying stock.
Short sale
Buying a put option is generally treated as a short sale, and the exercise, sale, or expiration of the put is a closing of the short sale. See Short Sales, earlier. If you have held the underlying stock for 1 year or less at the time you buy the put, any gain on the exercise, sale, or expiration of the put is a short-term capital gain. The same is true if you buy the underlying stock after you buy the put but before its exercise, sale, or expiration. Your holding period for the underlying stock begins on the earliest of:
The date you dispose of the stock,
The date you exercise the put,
The date you sell the put, or
The date the put expires.
Writers of calls and puts
If you write (grant) a call or a put, do not include the amount you receive for writing it in your income at the time of receipt. Carry it in a deferred account until:
Your obligation expires,
You sell, in the case of a call, or buy, in the case of a put, the underlying stock when the option is exercised, or
You engage in a closing transaction.
If your obligation expires, the amount you received for writing the call or put is short-term capital gain.
If a call you write is exercised and you sell the underlying stock, increase your amount realized on the sale of the stock by the amount you received for the call when figuring your gain or loss. The gain or loss is long term or short term depending on your holding period of the stock.
If a put you write is exercised and you buy the underlying stock, decrease your basis in the stock by the amount you received for the put. Your holding period for the stock begins on the date you buy it, not on the date you wrote the put.
If you enter into a closing transaction by paying an amount equal to the value of the call or put at the time of the payment, the difference between the amount you pay and the amount you receive for the call or put is a short-term capital gain or loss".
irs.ustreas.gov
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