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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: JoAnn McCracken who wrote (6250)	12/30/1997 11:55:00 AM
From: mc	Respond to of 14162

JoAnn, on options, the taxes are due in the year that the position is closed. If you buy back the CC then that ends it. You would list that as a separate transaction on your tax schedule, not an adjustment to your basis. However, if you let the stock get called away then you adjust the sale price of the stock upward by the amount of the option premium less fees and commissions. Additionally, because the options income is not reported, this will cause a discrepancy between what is reported to the IRS by your broker and what you show on your tax schedule. If you have any stocks that got called away, you should attach an explanation to your capital gains tax schedule explaining that the difference in reported and actual is the adjustment for an option. Gary

To: JoAnn McCracken who wrote (6250)	12/30/1997 12:49:00 PM
From: Herm	Respond to of 14162

Hi JoAnn, Paying taxes is a great problem to have in this country! It means you are making more money! :-) According to guru Lawrence McMillan, Options as A Strategic Investment, page 807: "Written calls that are brought back in the listed option market OR are allowed to expire worthless are short-term capital gains. A written call cannot produce a long-term gain, regardless of the holding period. This treatment of a written call holds true even if the investor simultaneously owned the underlying stock (that is, he/she had a covered write). As long as the call is brought back or allowed to expire worthless, the gain OR loss on the call is treated separately from the underlying stock for tax purposes." Now, as for your own record (scoreboard) of your net cost basis (nut), I factor ALL COST (transactions for each stock) into my template numbers because it really is the bottom line if you are making or losing money as an investor/speculator. See the difference? Just think! Every reader has a different % return on investments depending on what tax bracket they are paying taxes on!