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

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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.

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Next Steps

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

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Pricing

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As stated above, my billing rate is $180 per hour for tax return preparation.

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:

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1. The Form 1099-B from each brokerage/clearing house is sometimes incorrect - either with assignment/exercise, basis or term (Long or Short)

2. 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.

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Using the number of transactions, you can roughly estimate the approximate cost:

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*  One Transaction = a Buy, Sell, Open or Close; so each line of your tax form (Form 8949) represents TWO transactions

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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.

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Fees increase the more brokerages in which you trade and if you have odd-lot versus round-lot trades ... and the increase can be double or more since wash sales must be analyzed across brokerages and odd-lots combined.

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Keep in mind ... These are only rough estimates.