Burkhard,
Looks like your Stocktax program has worked for me. I don't know if you happened to see this article in the WSJ. I emailed Rebecca Buckman telling her I have nearly finished my tax work with the help of this software. Thanks....Jeff
March 17, 1999
A Less Taxing 1999
Online Traders Face Mountains
Of Paperwork Due on April 15
By REBECCA BUCKMAN
Staff Reporter of THE WALL STREET JOURNAL
Jeff Jordan is an online trader with a big headache.
The 42-year-old Las Vegas construction worker spent more time trading
stocks last year than he did building luxury hotels. In perhaps 1,000 separate
transactions, he bought and sold some $6 million of stocks, netting somewhere
between $50,000 and $100,000 after commissions.
Now, eyeing the dozen inch-thick folders that contain his 1998 trading records,
Mr. Jordan is realizing that he may have to pay an accountant to sort them out
so he can file his tax returns. "I'm sure I'm going to pay big time for them to do
it," he laments.
Many rapid-fire online traders are in the same boat. With April 15 fast
approaching, lots of people, including wide-eyed, novice "day traders" who
have never before filled out a Schedule D capital-gains form, are wrestling with
a paperwork nightmare.
"The problem is, you have to report every single trade," explains Martin
Nissenbaum, national director of personal income-tax planning for Ernst &
Young.
Gains on stocks held 12 months or less -- an eternity for a click-happy
computer trader -- will be taxed at the same rate as ordinary income, which
ranges from 15% all the way up to 39.6%. That's a bigger tax hit than the
maximum long-term capital-gains rate of just 20%, notes Mark Luscombe, a
lawyer and a certified public accountant at CCH Inc., a Riverwoods, Ill.,
publisher of tax and business-law information. On some days, traders may have
short-term as well as long-term gains.
Further complicating matters, the 1099 forms brokerage firms send investors
and the Internal Revenue Service to report interest, dividends and trading
revenue typically contain only sale data, not the specific stock purchase prices
needed to calculate the gain or loss on each trade, Mr. Nissenbaum says. It's
up to the individual investor to match each sale with a stock purchase, figure out
the gain or loss and then report each one on a Schedule D capital-gains form.
Old brokerage statements and trade-confirmation slips usually contain most of
the information investors need.
But the task can be a chore for frequent traders. For about three months, Mr.
Jordan dutifully entered data about each trade into a computerized log using the
popular Quicken personal-finance software, made by Intuit Inc. Then "I
started falling behind," he admits. "I do three to five trades a day, and I prefer
to spend more time researching at the end of the day" than organizing records.
Some online-trading houses are making tax preparation easier for day traders,
who normally are among the firms' most profitable customers. Most of the
biggest online brokers, including Charles Schwab Corp.; Waterhouse
Securities Inc., a unit of Toronto-Dominion Bank; and E*Trade Group Inc.
have arrangements with Quicken, for instance, that allow the software product
to automatically transfer account information from the brokerage firms'
databases into a customer's Quicken records.
Quicken then calculates each gain or loss, and "the user never even has to think
about cost basis or anything,"' says Kevin Reeth, Quicken's product manager.
Microsoft Corp.'s Money product performs a similar function, and Microsoft
announced Web partnerships with three new brokerage firms on March 9.
At Schwab, sophisticated investors who make at least 48 trades a year get free
gain-loss reports every quarter, plus "enhanced 1099" forms with a supplement
-- not sent to the IRS -- that contains more detailed transaction records, says
Jamie Moldafsky, a Schwab senior vice president for retail-client services.
Still, most online brokers aren't doing much more than the minimum. A recent
survey of Internet brokers by Gomez Advisors, an online consulting firm in
Concord, Mass., found that only 13 of 58 firms polled provide data about
stock purchases, as well as sales, along with their 1099 forms.
At least one strategy for reducing taxes on trading gains is out-of-reach unless
online investors knew to take specific steps last year while they were doing all
that buying and selling -- and got cooperation from their brokerage firm.
Mr. Nissenbaum offers this scenario: Suppose an investor bought 1,000 shares
of Amazon.com on March 1 for $80 a share. On March 15, he bought 1,000
more, but the price had gone up to $90 a share. Then suppose he sold 500
shares a few weeks later, when Amazon.com hit $100.
What was the taxable gain? If the investor took steps when he sold to specify
that the 500 shares were part of the 1,000 shares he bought on March 15, his
taxable gain could have been just $5,000.
But the gain would be twice that if the investor didn't take any steps to specify
which shares he was selling. The Ernst & Young "Tax Saver's Guide for 1999"
says you can do this simply by "giving your broker a standing order to use
securities with the highest basis when you sell. The same goes for your
mutual-fund shares. If you don't, the shares you purchased first generally will be
considered the shares sold."
Although traditional, full-service brokers may be familiar with this technique,
many nonhuman computer Web sites are not. Even if a customer calls Schwab,
the nation's largest online broker, the company won't allow investors to mark
shares, the company's Ms. Moldafsky says.
Fleet Financial Group Inc.'s Quick & Reilly and Suretrade units, however, do
allow customers to identify shares, as long as they call a broker or contact the
company via electronic mail on the day of the transaction.
Arcane tax issues such as this are the stuff of juicy gossip on the "Income Taxes
and Record Keeping" message board on the popular Silicon Investor Web site.
On the board, which serves as a discussion forum for technology investors,
people dissect the tax treatment for expired options and delve into the
intricacies of the so-called wash-sale rule, under which investors can't deduct a
loss on the sale of a stock if they buy the same stock back within 30 days
before or after the sale.
Some day traders might even consider investigating whether they qualify to file
their taxes as professional traders. But there are drawbacks to the designation,
tax advisers warn, and few people actually qualify. You shouldn't try this
without professional advice.
Other day traders, though, are much less seasoned. Indeed, at Schwab's
customer-service center in Orlando, Fla., broker Susan McMahon says she
sometimes feels it necessary to remind investors, who often have previously
invested only in tax-deferred 401(k) accounts, that they actually have to pay
taxes every year when they buy and sell individual securities in a regular
brokerage account.
-- Carrie Lee of The Wall Street Journal Interactive Edition contributed to
this article.
URL for this Article:
interactive.wsj.com.
Copyright © 1999 Dow Jones & Company, Inc. All Rights Reserved.
[End article] |
