OptionsTaxGuy

The use of Exchange Traded Funds ("ETFs") that make non-dividend distributions ("NDDs") inside a mark to market ("MTM") account somewhat runs contrary to the purpose of a Trader in Securities ("TIS"). It is an arguable position, but the purpose of NDDs, especially ones that focus on a covered call strategy within the ETF, is more suited to investments to generate income and retirement accounts rather than capturing profit in response to short-term movements in the market. Dis

Those who have both investment accounts and trade as a Trader in Securities with a mark to market election realized the tax characteristics of both types of accounts are significantly different and may want to take advantage of those characteristics by transferring securities between the two accounts in order to take advantage of those characteristics. Some possible reasons to transfer securities between investment and MTM accounts: Unrealized loss exceeding the $3,000 limita

Tax straddles are some of the most complex tax rules in the Internal Revenue Code and can appear in unanticipated situations. Tax straddles are designed to restrict a trader from deducting losses before recognizing gains associated with a particular trade or trades. A tax straddle is an offsetting position in securities if there is a substantial diminution of the risk of loss with regard to holding one or more other position. For example, the classic straddle example is being

Tax basis is your adjusted cost of a security, be it a stock, option or bond. Basically, tax basis is the cost of the security. However, your cost can be "adjusted" based on a few nuances associated with trading options. Essentially, the cost basis or the proceeds can be adjusted based on whether your are long or short a put or call. The following table reflects specific treatment by option type: For this purpose, we will focus on Short Put assignment and not Short Call exe

How much in Net Capital Loss carryforward ("NCLcf") should you have before electing Mark to Market ("MTM")? That is a difficult question to answer quantitatively. Once the MTM election has been made, the NCLcf is frozen for offsetting any MTM gains since the NCLcf is by definition a capital loss and MTM gains are ordinary income. The NCLcf can offset capital gains if you have setup two accounts, one for trading - the MTM account - and another for other investments. The detai

If you have substantial long-term capital gains ("LTCG") in one or several stocks and you are considering the Mark to Market election, you should consider these options. If you have stock from a previous employer, or gifted to you by a grandparent, or you have simply held for a number of years for various reasons, and that stock has a substantial gain, if you make the MTM election and include that in your MTM trading account, that long-term gain will be taxed at ordinary inco

This topic should be used in conjunction with the Form 3115 topic. So what is a Sec 481(a) adjustment? There are quite a few types of Sec 481(a) adjustments so I will limit this to the adjustment regarding the Mark to Market ("MTM") election. The term "Section" refers to Section 481 of the Internal Revenue Code, abbreviated "Sec". By definition, if you are making the MTM election, you are considered a "Trader in Securities": Sec 475(f) - (A) In general. In the case of a per

The most frequent question I receive about filing as a Mark to Market ("MTM") trader for the first year is "When do I file Form 3115?" It is important to remember that Form 3115 is NOT a MTM election form - even though some CPAs believe this is the case!! It is filed with the first year tax return as a MTM trader. The MTM election form is filed with the tax return or extension during the LAST year of filing with the realization method of accounting for securities gains and

One of the most frequent questions I receive is "How do I deal with wash sales?" or "How can I eliminate the wash sales on my 1099-B and report the actual loss?" The wash sale issue became more prevalent when brokers were mandated by Congress to start reporting cost basis to IRS and taxpayers back in 2008. Implementation for stock was January 1, 2011 and options January 1, 2013 with various iterations of compliance. Since then, it has been the bane of the Investor's or Trad

I receive a number of questions regarding the interaction between a mark-to-market trader who also trades IRC Section 1256 contracts ... abbreviated "Sec" henceforth. Sec 1256 contracts are defined as: Regulated futures contracts Foreign currency contracts Non-equity options Dealer equity options Dealer securities futures contracts By far, in my experience, the most common Sec 1256 securities are "Non-equity options," such as options on stock indexes, ie, SPX (S&P 500), DJX (

Sometimes worse than a letter from the IRS is the receipt of your Form 1099-B in February. You thought you had experienced a significant loss and would have a net capital loss carryover for years, but you discover your broker actually reported a GAIN to the IRS!!! So what can you do? > Download the raw trades from your broker. If you cannot download them, request them from customer service. If that takes more than a day, change brokers. > Sort all the ancillary informatio

The assumption by most investors is that their 1099-Bs are correct and if their records differ from what the broker reports to IRS, there is a real problem. To a certain degree that is correct. But, first off, Form 1099-B is not always correct. Take a look at the following: So how can a security purchased on 6/28/2019 and sold on 12/27/2019 be LONG-TERM? Good question. So how is this error dealt with on Form 8949? Report the gain or loss on the correct section of Form 8949,

A wash sale can ONLY occur when a security is sold for a LOSS. Therefore, if there is no loss, there can be no possibility of a wash...

Contrary to popular opinion, trading strategies are not taxed, at least not as a strategy. In other words, a Long call or a Short iron...