RE: [TheOptionClub.com] Is Turbo Tax PremierThe Way To Go For Option Trader Tax Return?

 

I know a lot of people treat covered calls that way.  I did not know there was an IRS reg that approved it.  I’d like to see that reg. L  (Some people treat naked puts that way.  I doubt if that is covered by the reg. J )

 

AFAIC, the ‘wash sale’ rule is an audit issue.  If you are trading in/out, have a diversified portfolio.  I would not worry about a ‘wash sale’.  If you get audited and the agent catches it, you will probably have already sold the asset you bought too soon.  At worse, it would mean extra taxes for the year under audit BUT they would have to give you credit for the increased basis the next year.  This is called a roll-over adjustment.  The agents will not go to the trouble to write up a case, since he’d have to open the following year’s taxes AND give it back.

 

Now, if you bought a million shares that have dropped BUT you still have to hold – they are coming back, right?  A wash sale at year end would be a bad idea.  We are talking about a significant amount (however, only $3,000 could be used against other income) and it will be obvious that you did it just to create an artificial deduction.  In that case, it should be easy to avoid the wash sale rules.   Proper tax planning.

 

Any wash sale created in the normal course of trading would be minimal, compared to your return, would be ‘accidental’ and would be offset by the sale the next year.

 

 

Hi Leo.  TurboTax alone is not sufficient to file your taxes if you do any type of complex trading, like options.  For example, if you write covered calls, per the IRS regulations, you need to subtract the premium from the sale of the call from the cost basis of the stock, and not show the option trade on the Sch. D at all.  And you have the rule about wash sales.  TurboTax does NOT do any of this.  So you need to use external software to match-up all your trades, especially if you have multiple account across different brokers, and then import the final balanced completed Sch. D file into TurboTax after the external program has gotten everything balanced.  Here is a list of what is offered by various brokers.  As well as the third party trade matching software available on the market.  I have personally used Trade Accountant and can recommend it.

 

Also by the way the CPA in this link specializes in trader taxation, and he will review a client-prepared tax return for something like $550, which is well worth it.

 

http://www.traderstatus.com/planning.htm#tradematching

 

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