How do active stock and option traders report their 1000's of trades each year? (income, business)

[golfernut22]

There are active traders who make several thousand trades per year.
Some are considered a business by the IRS, based on how much time they put into the trades per week. Others are not considered a business.

Anyone know how they report these to the IRS, without having to hand write, each purchase and sale, on an individual line on the forms?

I interested to know how very active traders report their trades.

All short term trades are taxed at the same rate, so it seems the IRS would not care, if you lumped 3 IBM call options bought and sold in March 2012, with 6 IBM call options bought and sold in October, 2012. (= 9 IBM calls with a total short term loss or a total short term gain)

A call to the IRS got no definitive help.

The investment forum has no tax threads.

Thanks.

[mortimer]

Originally Posted by golfernut22

Anyone know how they report these to the IRS, without having to hand
write, each purchase and sale, on an individual line on the forms?

I use a tax software program and enter them there rather than hand write them.

I have dozens of trades - up to 100 in a year. If I had a lot more, I would probably look into some sort of software like Quicken.

Originally Posted by golfernut22

All short term trades are taxed at the same rate, so it seems the IRS would
not care, if you lumped 3 IBM call options bought and sold in March 2012

I do that a lot.

If you are audited, as long as your total numbers are correct I don't imagine you will get in trouble.
I don't imagine it is strictly legal. ( I would also insist that someone at IRS told me it was OK to do it. )

One year, I just couldn't get around to itemizing them. I track them on a spreadsheet all through the year.
I just put down the total and intended to file an amended return right away with all the detail.

I still haven't gotten around to it yet.

[golfernut22]

I have over 700 and with 25 per page, about 30 pages.
I filled one page out and it took an hour. So, 30 hours to complete my return.

The D-1 has been replaced with the Form 8949 this year, where each transaction has to be classified in categories A-B-C. They may have complicated an already complicated tax code (across the board).

The instruction book for Schedule D is 14 pages. Should one form be that complicated?

Go Steve Forbes.

[mortimer]

Originally Posted by golfernut22

The instruction book for Schedule D is 14 pages. Should one form be that complicated?

Go Steve Forbes.

Steve's plan won't solve this problem.

You don't have a problem calculating your tax. You have a problem calculating your income.

( 1 ) - You have to look at your chances of an audit.
( 2 ) - You have to look at your chances of getting in trouble if you are audited.

I am operating on the premise that if I make $1-50k trading stocks and options
and I lump groups of options together that are pretty close in date and are identical
in underlying stock and have the same tax classification ( short or long term )
then I'm going to do it and worry about getting audited for my tiny little gain later.

OTOH, if I make six-figures doing this, then I'm going to just hire someone to
write all that crap out for me and give the IRS a jillion pages of Schedule D stuff.

If I paid exactly what I was owed, then there isn't much they are going to do to me.

Others may have had an experience that makes my thinking completely
wrong, but until I hear differently, I'm going to lump my stuff.

Note that it would be relatively trivial to create an excel spreadsheet that would
automatically create a Schedule D form from an easy-to-compile data sheet.

It's too bad that the IRS and the broker can't just get together to report all the
short-term gains on a 1099 that would have one number on it that you could just
input into the schedule D. What do they need all that detail for anyway?

It would not possibly come up unless there was an audit. In the audit,
the taxpayer would be bringing all that stuff to the table anyway since
they would have to defend the numbers with brokerage statements, etc.

[golfernut22]

Originally Posted by mortimer

I am operating on the premise that if I make $1-50k trading stocks and options and I lump groups of options together that are pretty close in date and are identical in underlying stock and have the same tax classification ( short or long term ) then I'm going to do it and worry about getting audited for my tiny little gain later.

OTOH, if I make six-figures doing this, then I'm going to just hire someone to write all that crap out for me and give the IRS a jillion pages of Schedule D stuff.

If I paid exactly what I was owed, then there isn't much they are going to do to me.

Others may have had an experience that makes my thinking completely
wrong, but until I hear differently, I'm going to lump my stuff.

Note that it would be relatively trivial to create an excel spreadsheet that would
automatically create a Schedule D form from an easy-to-compile data sheet.

It's too bad that the IRS and the broker can't just get together to report all the short-term gains on a 1099 that would have one number on it that you could just input into the schedule D. What do they need all that detail for anyway?

I've always hand written my dozens of pages of D-1. They can analyze the numbers, and my handwriting, and find any errors they desire.
I am not worried about wash sales, or audits.
The more complicated my return is, the greater chance the person who opens the envelope, decides to give it a good ole check mark, and classify it as done. If they want to look for errors, they can. But, they won't find any.

My broker is having a webcast today and tomorrow on how to use the 1099 to report sales. Hopefully they allow questions. My main question is how to know-see which transactions are category A or B, on the new form 8949. And more specifically, if my broker's 1099 has matched up sales and purchases to show gains or losses, what happens, when my matching is different than the broker. I've always used first in first out.
My broker could match shares sold, with shares bought, when I have them matched differently.

Despite what the IRS thinks, if there are no wash sales violations, then all buys and sales, all end up at the same end point. You can mix and match all you want, and the ending numbers will be the same.
So, the entire D-1 was a bunch of noise, when they only need the bottom line number.

[ragnarkar]

I just use Gainskeeper offered by my broker..