I don't like how this tax issues is handled in some posts here. I have a different way. But I'm no tax expert. (And nobody should assume I even exist as a real tax-paying person, this being the internet.)
Why would anybody worry about getting a letter from the IRS with the conclusion if they did, they could explain it to the auditors. No! You explain it BEFORE you get the letter, so you don't worry about and don't get, that darn letter. Put the explanation on a piece of paper attached to Sch. D.
I use Sch. D to report all sales where there were associated purchases. Just like the instructions say. I do not jury-rig anything. The reconciliation letter resolves any issues.
That written explanation goes roughly like this:
(title:) Reconciliation: "Summary of 2005 Stock Transactions Gross Proceeds"
1099-B "Proceeds from Broker Transactions" as reported to IRS by XYZ Brokerage: $134,250.
Sales amounts as reported by taxpayer
Short term gains and losses-- sales (Sch D): $35,000
Long term gains and losses-- sales (Sch D): $94,000
Short positions still open:
100 sh. Frankco sold 1/5/05 $2,125
50 sh. Bigbear Co sold 6/15/05 $3,125
Total Sales: $134,250.
Repeat for 2nd, 3rd brokers (if any)
This way, the auditor can see exactly what's going on - what you did. There's no head scratching. (Whether or not the auditor believes you though, that's another story.)
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I find it irritating to read posts by people who do not know or have not planned their tax consequences, such as reporting. It speaks to me that the person should not be shorting stocks and maybe shouldn't be trading either, because the person does not know what he/she is doing. It's like, "Oh here's a tool, it's shorting, I can do that". Not quite! lol. |
