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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: BDR who wrote (13472)	1/8/2001 10:57:06 AM
From: Herm	Read Replies (1) of 14162

Hi Dale, Interesting tax related question. I will try to answer this keeping in mind I'm not a tax accountant. Neither, have I ever been audited. So, I would imagine I have not tripped any flags... If I'm not mistaken, both covered calls or LEAPs spreads writing are short-term taxable events in the year the income is deposited into your account. In the example given you indicated the expiration in Jan02. You would be wise to close your position (if you had a lost) before December 2000 in order to cleanly show that lost against the net income derived from the preemie collected. At least, that is what I tend to do to keep it simple. Also, I'm fairly sure that "marking to market" is a record keeping consideration that is IRS accepted from individuals who work under the status of "professional traders" and file their taxes under those tax rules. The normal capital -$3,000 max. loss against income gains per tax year does not apply to professional traders in that they can write off their entire losses against their entire gains every tax year. Thus, that is were the "marking to market" is necessary in order to see a running tally of losses and/or gains for tax purposes. The normal tax payer would roll forward to the next tax year the tax losses from the previous year. Again, until that $3,000 loss is reached. The process is: old roll forward loss taken first and then any new losses until the $3,000 is reached. In closing, you can read more about what qualifies for "traders status" and other tax considerations from Fairmark Press. They provide a fantastic overview. IRS TAX GUIDE FOR TRADERS coveredcallswins.com IRS TRADER'S STATUS coveredcallswins.com Thanks for your good question Dale.

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