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Strategies & Market Trends : IRS, Tax related strategies--Traders -- Ignore unavailable to you. Want to Upgrade?

To: RookieTrader who wrote (446)	8/19/1998 1:16:00 AM
From: RookieTrader	Read Replies (2) \| Respond to of 1383

Some clarity on WASH SALE... Seems like people are making this more confusing then it really is. It's called a wash sale because in a sense that is really what it is doing. Washing your losses away onto this years taxes...yet you still own the security. A simple example: You buy 1000 shares of xyz @ $100. on Jan 2nd 1998 (or anytime after the start of the new tax year ie Jan 1st) Ok lets say XYZ has a hard time and it drops to $50 by Dec 1998. You have a $5000 unrealized loss! Ok, lets say you have had a good year but, you want to lower your taxable income with this loss that could have if you sold. So let's say you sell XYZ on or before dec 31 and you have the $5000 loss to put on schd D. Of course you still think XYZ is a good long term holding so you buy it back right away @50 (actually it doesnt matter what you buy it back at) Now you are long again 1000 XYZ. And you have a realized $5000 loss to put on your taxes! Bingo right? WRONG! The IRS looks at it like you still own the same property and you just "WASHED" out a loss to put on your taxes. So they will not allow you to claim that loss. (the loss is not forever gone, it will simply be neted out of what you evenually gain or loss on the next sale of XYZ) It's unfair yes I know. Ok here is where the 30 day stuff comes into play. If you wait 30 (so if you bought on the 31st day) days after you sold XYZ you could rebuy it back and take the new long position with having to worry about the WASH sale rule. However not all is lost, the IRS will let you buy a similar stock in the industry or any other stock for the time being, until that 30 days is up with out the wash sale rule going into effect. The wash sale rule also works 30 days BEFORE. So if you were to buy a 2nd lot of 1000 XYZ 30 days before you sold your first lot of 1000 xyz the IRS would say that you own the same property and that you are net net 1000 xyz and have the $5000 realized loss to put on your taxes. One sneaky thing you could do is...after you have sold for a loss to put on your taxes you could then re buy the same position and then sell at a small gain and that would take away the effect of the WASH Sale and then you would just re buy again to go for the long haul and since your last trade was a gain you would not have to worry about the WASH sale rule! So basically its like this...if you are going to take a loss but re initate the same position in the same stock, 30 days before or after you sell, you will come into the wash sale rule. Because you own the same stock or property but you have a loss in it. You just have to think about it a little. Again you can trade in and out of XYZ as many times as you want but if the last trade you do is a loss and you go back in long with in 30 days before or after and you do not close that position by the end of the year you will be hit with the wash sale rule. I hope this is clear enough. As for this Mark to Market method for trader status. The only day Mark to Market is really going to matter is the beginning of the year and the end of the year. If you have an open position of 1000 XYZ on DEC 31...on your tax form you will mark that position to the market close price and take it as a loss or a gain depending on what you bought it at. That new price will be your new cost basis on Jan 1st 1999. So that is why a wash sale rule does not apply to those that choose the mark to market method...because it's like they close out all of there positions at the end of the year...so it's impossible to WASH out a loss but remain in the same stock /property. Personally I don't see what is so cool about Mark to market...they need it for dealer's since they have inventory all the time and they need a inventory value to net a gain or loss at the end of the year. well anyway... happy trading and I hope this helps

To: RookieTrader who wrote (446)	8/19/1998 1:39:00 AM
From: RookieTrader	Read Replies (1) \| Respond to of 1383

Schd C questions.... Ok let's assume that I qualify for "trader status". And I am going to put all of my trades on Schd D and I end up with a gain of $5000. Next assume that I have Margin Interest cost or expense of $300 for the year. And then finally assume that I have $500 in other expenses such as internet, subscriptions to SI TSC etc, a real time data feed. Let's leave out a computer or home office. So anyway, bottom line I have these costs. Where and how do I put them? I assume from all the posts and from what TSC and ted tesser says...that I put them on Schd C. Can some one give a line by line view of how Schd C would be filled out? Next... What if I have a net loss exceeding $3000? How do I get that on 1040 when Schd D only lets me do 3000? next... Back to this Schd C thing. Isn't always claiming a loss on Schd C going to red flag me for an audit. Well...I know it is!!! But is it legal this way? WHY & according to who? THANKS!!! Smart_trader98@hotmail.com