Consultation / Preparation
I developed this site, as I stated on the Home page, to help option traders understand the complexities of stock and option taxation.
I have received many emails with some great questions and very few times do I charge for those answers since I may know the answer from experience or I can refer the inquirer to this website.
Unfortunately, there are also those people (very few thankfully) that will email 20 questions for which I will respond with a five-page document and then they will ask several more follow-up questions for which I will respond with another page of answers, and they are still not satisfied, nor do they want to pay any more.
So here is generally what is covered and not covered in a consulting engagement:
General and specific questions about topics on this website for which you want more information.
No answers will be provided about your specific tax return, for instance, what number goes where on your tax forms. In other words, I will not prepare a tax return via email or over the phone.
No specific answers regarding state individual and business income tax returns. Most state returns “piggy-back” on the Federal return but there will most likely be a nuance for which I am not familiar with regard to your state.
I do not consult on how to get your option trades into off-the-shelf tax software, like TurboTax®. Those packages are not designed to handle the intricacies of option taxation. I do have a method but it changes annually, thanks to the IRS, and there is a fee involved.
Entity selection for your trading business. Many companies on the internet want to sell you a “one-size-fits-all” solution for your trading entity at substantial setup and ongoing compliance cost, and you may not need - or want - an entity.
Bottom line … email me your questions and I will respond with either the answers - at no charge - or will give you a price for the answers, which is typically no more than $150, even for the scenario described above.
So how much does all this great advice cost?
My rates are roughly $175 per hour for tax return preparation from scratch as well as option and trading tax form preparation with a minimum of $225.
Consulting engagements start at $175 per hour and typically last no more than one hour. This is a good option (no pun intended) for those do-it-yourselfers who just have a couple issues they are unsure how to treat on their tax return. Plus, if you email your questions, you receive an email document in reply to use as a reference in the future.
But again, please email first.
You Want Me To Do It ...
More than likely I can get this done for you … given enough time.
If you send me your information after March 31 for April 15 deadlines or September 30 for October 15, that might not be enough time.
The critical issue is the condition of the data files. If you have only one brokerage in which you are trading here is what I need:
Year-end statement showing all open positions.
If you traded in a previous year I need the prior year-end open positions and their trade date, type (BTO, STO), description (OSI symbol) and trade amount.
The Form 1099-B from your broker/clearing firm.
An Excel download from the brokerage showing the raw trades on the date of the trade. Each brokerage has different data formats and this is the critical factor … some are pretty good and some are pretty bad. If it is the latter, the data fields might need to be derived.
The following data fields must be available or be able to be derived from the raw data:
Required Data Elements
Activity is surprisingly the most difficult to determine. If it is not designated as it is in the above ‘Required Data Elements’ then it must be derived based on the following data elements:
Some form of Activity, probably simply Buy or Sell
Type of security, stock or option
A Buy should be designated with a positive Quantity and negative Amount
A Sell should be designated with a negative Quantity and positive Amount
Open or Closed
The next part of the Activity designator is to determine if it is an Open, a Close, an Expiration, an Assignment or an Exercise.
Some brokerages and/or clearing firms do not include Closing option trades if it is an Expiration, in which case the Opening trade appears to still be open at year-end.
Some brokerages and/or clearing firms will designate an Assignment or an Exercise as the Activity, leaving it up to the user to determine if it was a STC or BTC.
So, even after the information required is provided, there is the potential for a lot of work to be necessary simply to get the data into a useable format.
The next steps in the process are:
In one way or another to tie-out the beginning-of-year ‘Open’ positions - for both stock and options - and the end-of-year ‘Open’ positions to their respective December brokerage statements
Test for assignment and/or exercise for each option
Adjust the Cost or Proceeds for the assignment/exercise
Check for Wash Sales and adjust cost basis and holding period
Match the reported cost basis on the 1099-B to the cost basis from the above procedures
Determine any Form 8949 Adjustment Code and Amount
Match the Opening and Closing option trades
Produce Form 8949 with the appropriate Box A through F
Determine if any other forms are necessary, such as, Form 4797 or Form 6781
If you are trading inside an entity, the preparation of those forms, ie, Form 1065 or Form 1120S
As stated above, my billing rate is $175 per hour.
And, as you can see, the process is not simply running the data through a software package and out pops the correct answer. No software package can produce that at this time with the above level of intricacy.
The above process is also complicated by several issues:
The Form 1099-B from each brokerage/clearing house is sometimes incorrect - either with assignment/exercise, basis or term (Long or Short)
As discussed on this website, there may be multiple brokerages which exponentially complicates matters. If multiple brokerages are involved then the above information requirements are essentially multiplied by the number of brokerages.
Using the number of transactions, you can roughly estimate the approximate cost:
* One Transaction = a Buy, Sell, Open or Close; so each line of your tax form (Form 8949) represents TWO transactions
The same number of processes are required for a small amount of data as a large amount of data. The seeming time disparity comes from the time involved in matching the cost basis to a larger number of transactions.
If you are trading inside an entity, the minimum charge for the entity alone (Form 1120S, Form 1065) is $250, not including the transactions.
Keep in mind ... These are only rough estimates.
I can scan over your information submission and give you an estimate of what it will take to complete the project.
A Retainer is required before I begin which is approximately 50% of the estimated cost.
Payment in full is required before you receive the finished product. You will receive the first and last page of the forms with the final invoice. The complete finished package includes:
Transmittal letter with instructions on how to incorporate the forms into you tax return
Addendum to Jurat where we take responsibility for the forms we prepare, unlike any other software package or service
The tax forms
An ‘Open Share Detail’ report with your adjusted basis and holding period listed (if applicable)
But ... be sure to email or call first: (214) 327-0700.