Taxes

[popowich]

Hello,

I generally don't have too hard of a time with my taxes but I went bonkers last September/October and generated a lot of trades while trying to day trade myself some extra bucks with mostly short sells while the market was falling. Are there any shortcuts to reporting results of many of the trades were in the same stock? For example, GOOG is a favorite of mine when it's time for gambling so if all my trades are in the same month can I report the net results of all the activity (includes both normal and short sales) as one massive trade or does each individual transaction need to be reported?

-Raymond

 

[kaneohe]

Not saying IRS would approve this but I have heard some (or at least one) of my fellow volunteer tax-aide folks say that if somebody like you came in w/ a zillion trades w/ broker supplied documents that showed short-term and long term trades separated out and summed up w/ accurate gains/losses for each trade, he would just enter one line item on Sch D for short-term and one for long-term w/ the broker's name in place of the #shares/stock name, VAR for the dates (for various), and the aggregate gain/loss.
That works only if the broker-assumed basis was the same as yours (FIFO, specific shares,etc). If IRS questioned it, you would have ready backup for your position....
Or you could supply the broker data w/ your return with a note of what you did.

If the broker did not supply data that was accurate for your use and you had to calculate it yourself , you might as well supply your data instead.

I wouldn't want to type a zillion lines either.

edit: I haven't done a short sale in a zillion yrs so don't know if that would change anything.

 

[popowich]

I have broker (Scottrade) supplied mailings and printouts that have essentially what is a "net transaction" stat above all of the individual transactions. I figure all I need to do is add the commissions ($7/trade) to the cost and it's the same as entering them all separately.

-Raymond

 

[popowich]

My other silly questions is for New York (not sure if everywhere).

I have a property tax number and a school tax number.

Are the school taxes included in the property taxes, or do I need to add them together?

-Raymond

 

[kaneohe]

I have broker (Scottrade) supplied mailings and printouts that have essentially what is a "net transaction" stat above all of the individual transactions. I figure all I need to do is add the commissions ($7/trade) to the cost and it's the same as entering them all separately.

-Raymond

You should check a few of the transactions in the end of yr report (or maybe 1099B backup data) w/ the original transaction confirmations to be sure you understand what "net transaction" means and that the commissions are not already included in your tax summary. Then you can decide how to adjust the broker data if necessary. If you are using tax software, will it allow you to put VAR or VARIOUS for both dates? No problem if doing by hand.

 

[Nords]

Are there any shortcuts to reporting results of many of the trades were in the same stock? For example, GOOG is a favorite of mine when it's time for gambling so if all my trades are in the same month can I report the net results of all the activity (includes both normal and short sales) as one massive trade or does each individual transaction need to be reported?

You can enter "various", and most software will let you do that also.

The key is to make it easy for the IRS computers to match your Schedule D numbers to your brokerage 1099s. If they match up then there's a 99% chance a human being will never look at your return. If there's a math error then you will get a query letter. (Or, ahem, so I've been told.) If there's a difference in the subtotals (even if the numbers add up correctly at the end) then you might still get a query letter.

Be very meticulous about wash sales. Most brokerage statements indicate them but if wash sales end up on Schedule D then again you will get a query letter and you'll possibly end up paying more taxes plus penalties. The best way to avoid the wash-sale trap is to enter each & every set of dates for every sale/purchase so that the software can check you. Otherwise it's up to your keen eye and the brokerage's recordkeeping.

 

[SecondCor521]

...Can I report the net results of all the activity (includes both normal and short sales) as one massive trade or does each individual transaction need to be reported?

-Raymond

According to the IRS, you can't. Read on Page D-6 the IRS Schedule D instructions for line 1, particularly the second paragraph starting with "You must enter the details of each transaction on a separate line of Schedule D..." The only legitimate use of "various" on schedule D, as far as I know, is under purchase date when one sell transaction spans several purchase lots.

Having said that, what others have described here is a common practice, and like Nords says, if the totals on your Schedule D match the totals from the broker's 1099-B, you probably wouldn't ever have a problem.

2Cor521

P.S. -- Here's the horse's mouth: http://www.irs.gov/pub/irs-pdf/i1040sd.pdf

 

[ERD50]

According to the IRS, you can't.

You can do anything you want.

The questions is (beyond ethical questions), will it trigger an audit? And, if it does, can you defend yourself?

If in the end, the net matches the individual transactions, is the IRS really going to hit you up? For what? I suspect (and hope) they have bigger fish to fry than someone who didn't dot the I's, but did make sure that the I's all added up correctly - and can prove it.

Not saying IRS would approve this but I have heard some (or at least one) of my fellow volunteer tax-aide folks say that if somebody like you came in w/ a zillion trades w/ broker supplied documents that showed short-term and long term trades separated out and summed up w/ accurate gains/losses for each trade, he would just enter one line item on Sch D for short-term and one for long-term w/ the broker's name in place of the #shares/stock name, VAR for the dates (for various), and the aggregate gain/loss.

Agreed. see above. It's not technically correct, but if you can back it up, what's the real issue?

You can enter "various", and most software will let you do that also.

The key is to make it easy for the IRS computers to match your Schedule D numbers to your brokerage 1099s. If they match up then there's a 99% chance a human being will never look at your return. If there's a math error then you will get a query letter. (Or, ahem, so I've been told.) If there's a difference in the subtotals (even if the numbers add up correctly at the end) then you might still get a query letter.

That makes sense to me, but OTOH, I really wonder. For example, I do some option transactions and guess what? My broker does not report these to the IRS (they are not required to - don't ask me why). So, when I do the right thing and report my option transactions, I end up making my data miss-match the reported data. That should trigger the flag you mention, yet, this has never been questioned. Have I considered not reporting my option gains? I'll leave that up to the reader to decide.

Be very meticulous about wash sales. Most brokerage statements indicate them but if wash sales end up on Schedule D then again you will get a query letter and you'll possibly end up paying more taxes plus penalties. The best way to avoid the wash-sale trap is to enter each & every set of dates for every sale/purchase so that the software can check you. Otherwise it's up to your keen eye and the brokerage's recordkeeping.

Again, this *is* an area where I got fed up with the meticulous book keeping requirements, and have occasionally reported the net of a series of transactions where a wash occurred, rather than all the carry-forward wash sale losses that are technically required. I have only done this when the wash sale was netted out in the same tax year - I didn't want to mess with trying to carry this forward into a new tax year, that could get messy, and could violate the intention of the law, which I did not want to do. But I was younger and more naive then, and had not learned so much from our heads of State.

Again, if I did get audited, I could go through the transactions with the auditor, and we would come up with the exact same numbers. What is he/she going to do at that point, make me write on the blackboard 100x that I will enter every transaction? Hopefully, they go looking for a real tax cheat (pssssst, try Wash DC).

In fact, this is why I like to be super-conservative on some point on my taxes. For example, I take super-conservative estimates on my used clothing donations. If I were to get audited, and everything netted out to zero, I would then start asking about amending my return, saying that this review made me realize that I had "miss-underestimated" some of my deductions. I think they would get bored with the game very quickly. I suppose they have a $ recovered goal in their review?

My father ran his own business, and that happened to him. Got audited, and the govt ended up owing him money! Unfortunatley, that made him a bit over-confident, and when the *same* auditor was assigned to his case 20 years later (!), he got caught with some minor indiscretions.

-ERD50

 

[tulak]

Again, this *is* an area where I got fed up with the meticulous book keeping requirements, and have occasionally reported the net of a series of transactions where a wash occurred, rather than all the carry-forward wash sale losses that are technically required. I have only done this when the wash sale was netted out in the same tax year - I didn't want to mess with trying to carry this forward into a new tax year, that could get messy, and could violate the intention of the law, which I did not want to do. But I was younger and more naive then, and had not learned so much from our heads of State.

I had this happen to me this tax year. Odds are good that it could happen again next year. I received company stock which I immediately sold at a very small loss ($30 or something like that). Then within 30 days I bought shares through ESPP, which I sold immediately (I don't hold company stock). I was too lazy to calculate the correct cost basis for the ESPP shares. These are already a pain to deal with since you have to track beginning/ending purchase price, etc. I figure since I sold all of the shares and the end number is the same, no harm done. First year that I've had this happen, so I'll see how it plays out over time. But I'd be surprised if the IRS would bother with something this small.

I always think about playing the market. But it's for this very reason I never do it: I don't want to deal with the record keeping for taxes and the time it'd take to fill out the forms correctly.

It could be our tax code is saving me quite a bit of money.

 

[RustyShackleford]

I always think about playing the market. But it's for this very reason I never do it: I don't want to deal with the record keeping for taxes and the time it'd take to fill out the forms correctly.

Of course, you can just do this "playing" in tax-sheltered accounts,
and then no records need to be kept, nothing needs to be filed for taxes.

 

[Nords]

Of course, you can just do this "playing" in tax-sheltered accounts, and then no records need to be kept, nothing needs to be filed for taxes.

You may have just unleashed a [-]day trader[/-] monster...

 

[tulak]

Hmmm...tax-sheltered short-term trading.

Time to pick me up a few shares of BAC...or maybe GE...no, BAC...no, PG...ah darn it, too many choices...

 

[youbet]

Hello,

I went bonkers last September/October and generated a lot of trades while trying to day trade myself some extra bucks with mostly short sells while the market was falling.

Depends what ya mean by a "lot" of trades....... If you're talking a few dozen, you've probably spent more time trying to figure out a way to avoid making the entries than you'd spend actually doing them. If you're talking 100's of trades, that's different and probably worth trying to avoid.

Last year I had in the ballpark of 50 trades to enter. I just opened up my Schwab gain-loss report on my laptop and sat that next to the desktop with TurboTax and entered them. Since I tended to go off in a trance every once in a while as I was reminded of some of the dufus decisions I had made, it took all afternoon including the contemplation time. Just straight keyboarding, I could have done it in 1.5 hours.

 

[RustyShackleford]

You may have just unleashed a [-]day trader[/-] monster...

Hey, I'm thinking about doing the same thing myself.

Have a couple of "play" stocks in taxable (ENER and RMBS, don't ask)
and the way they roller-coaster up and down, I'm tempted to move the
positions to IRA-land and try to have some fun on the roller-coaster.
Combined they're maybe 1% of the egg, so it doesn't seem too reckless.

 

[LOL!]

A few years ago, one used to be able to use a "substitute" Schedule D provided by your broker and "see attached" on the real Schedule D. The IRS started to frown on that and issued a ruling. So brokers started to issue Schedule D-1's that looked exactly like the real Schedule D-1 (and why not? It's just a PDF file) and one could include that legitimately with your tax return.

Even with a hundred trades a year, it is not onerous to type them into your tax software if you can't download them directly from your broker into the software. I think it's a useful exercise to force you to think: "What was I thinking??"