5 ms·

There is a "Wash sale" rule that prohibits writing off losses on stocks purchased within 31 days of their sale, but they don't apply to day traders. https://ww

There is a "Wash sale" rule that prohibits writing off losses on stocks purchased within 31 days of their sale, but they don't apply to day traders. https://www.irs.gov/taxtopics/tc429 https://www.irs.gov/taxtopics/tc429 He will need a good CPA to declare which assets were long term investments and which fall under mark-to-market day trading rules, but he won't need to pay $800k. tl;dr: clickbait (mostly), but do read up on the wash-sale rule if you intend on day trading in order to save yourself an end of year headache.

duggable 5y ago
My understanding is that he can still count these losses towards the cost basis of the stocks, so it's not like the money is gone - just absorbed into the capital gains that will be calculated when he does sell. And if he had sold these >= 30 days before the end of the year, he would have been able to claim the losses on this year's taxes. Edit: all that to say, I agree that it's clickbait.
varispeed 5y ago
What this difference in tax aims to achieve? It seems like it is so complex it reminds me of parking meters with confusing signage designed to trap people not familiar with the area. Was that lobbied by existing traders to gatekeep their cake?
- rmah 5y ago
  The wash trade rule is to prevent people from taking a loss at the last day of the tax year to offset gains in other securities. Then re-buying it on the first day of the next tax year to "reset" the cost basis. In short, it's to prevent tax evasion shenanigans. Tax law is complex because people will spend a lot of effort to find loopholes. Closing these loopholes one after another creates the complexity.
  - marshray 5y ago
    But why shouldn't you be able to take your losses at the end of the year if you so choose? It makes no sense.
    - infinite8s 5y ago
      You can, but if you buy back the next day on the new year (and the price didn't move) you didn't actually take a realized loss.
  - varispeed 5y ago
    How do you take a loss? Do you organise a press conference and then tell the media that the company you have shares of is bad? Wait for the shares to tank, sell. When the new tax year comes, buy all the shares and then organise press conference again to say sorry and it was just a prank?
    - JumpCrisscross 5y ago
      > How do you take a loss? Portfolio of a hundred names. Half went up, half went down. Sell the downs on 31 December and buy back in 1 January (spherical cow). On the off change nothing in your portfolio lost money, congratulations. Also you don’t get this.
      - varispeed 5y ago
        Right, so you don't actually have a control over making loses at the end of tax year and if you buy back, there is no guarantee the stock will ever go up. So what is the issue?
        infinite8s 5y ago
        You didn't actually have a loss that year (to offset gains)
      - deleted 5y ago
        [deleted]
- toast0 5y ago
  Under (default) investor rules, you recognize income (or losses) only on sales or dividends (or taxable reorganizations), and can get long term capital gains, have a low limit on offsetting losses against ordinary income, can carry forward excess losses forever, and have the wash sale rule. Under trader rules, you must recognize gains (or losses) at the end of each year, and don't get capital gains rates, but you can offset income with losses all the way to $0, loss carryforward is time limited, but you can also carry back a few years. I'll keep my tax deferral and long term capital gains rates, thanks; but if I were a frequent trader, it seems like the alternate regime is simpler.
  - marshray 5y ago
    I've read 10 or 20 books on trading and investing and never heard it explained like this. Thanks.
dcolkitt 5y ago
This is not correct. Wash sale rules apply unless you make a mark-to-market election in the prior year.
- whydoineedthis 5y ago
  true about the mark-to-market specific election, it does need to be done the year prior and makes things for the following year earlier. He will still get out of the tax bill though through documentation. > A trader must keep detailed records to distinguish the securities held for investment from the securities in the trading business. The securities held for investment must be identified as such in the trader's records on the day he or she acquires them (for example, by holding them in a separate brokerage account).
- simplerman 5y ago
  Except for the first year in business, you can make that selection at the tax time of current taxes. EDIT: I am wrong: https://www.optionstaxguy.com/mark-to-market https://www.optionstaxguy.com/mark-to-market
EMM_386 5y ago
> but they don't apply to day traders How does this work for bot trading? Is that considered day trading? Crypto bots are popular. When you trade cryptocurrency for another crypto, you are taxed on the value at which you sold it in USD, net the amount for which you purchased it in USD. Would this be done mark-to-market? I'd imagine a lot of traders thinking they can easily plug in the latest bot into their Binance account are in for a surprise when they see the size of the return they have to file. I'm only talking about the US regulation here.
- astrange 5y ago
  Wash sale rules (the problem here) don't apply to crypto because it's considered property and wash sales only apply to "stocks and securities". You can definitely get into trouble if you do something like sell at a gain at the end of the year and instantly lose it all though.
GloriousKoji 5y ago
Slight off topic but how does one find a good CPA when they don't have access to trusted referrals?

duggable 5y ago

My understanding is that he can still count these losses towards the cost basis of the stocks, so it's not like the money is gone - just absorbed into the capital gains that will be calculated when he does sell. And if he had sold these >= 30 days before the end of the year, he would have been able to claim the losses on this year's taxes. Edit: all that to say, I agree that it's clickbait.

varispeed 5y ago

What this difference in tax aims to achieve? It seems like it is so complex it reminds me of parking meters with confusing signage designed to trap people not familiar with the area. Was that lobbied by existing traders to gatekeep their cake?

rmah 5y ago
The wash trade rule is to prevent people from taking a loss at the last day of the tax year to offset gains in other securities. Then re-buying it on the first day of the next tax year to "reset" the cost basis. In short, it's to prevent tax evasion shenanigans. Tax law is complex because people will spend a lot of effort to find loopholes. Closing these loopholes one after another creates the complexity.
- marshray 5y ago
  But why shouldn't you be able to take your losses at the end of the year if you so choose? It makes no sense.
  - infinite8s 5y ago
    You can, but if you buy back the next day on the new year (and the price didn't move) you didn't actually take a realized loss.
- varispeed 5y ago
  How do you take a loss? Do you organise a press conference and then tell the media that the company you have shares of is bad? Wait for the shares to tank, sell. When the new tax year comes, buy all the shares and then organise press conference again to say sorry and it was just a prank?
  - JumpCrisscross 5y ago
    > How do you take a loss? Portfolio of a hundred names. Half went up, half went down. Sell the downs on 31 December and buy back in 1 January (spherical cow). On the off change nothing in your portfolio lost money, congratulations. Also you don’t get this.
    - varispeed 5y ago
      Right, so you don't actually have a control over making loses at the end of tax year and if you buy back, there is no guarantee the stock will ever go up. So what is the issue?
      - infinite8s 5y ago
        You didn't actually have a loss that year (to offset gains)
    - deleted 5y ago
      [deleted]
toast0 5y ago
Under (default) investor rules, you recognize income (or losses) only on sales or dividends (or taxable reorganizations), and can get long term capital gains, have a low limit on offsetting losses against ordinary income, can carry forward excess losses forever, and have the wash sale rule. Under trader rules, you must recognize gains (or losses) at the end of each year, and don't get capital gains rates, but you can offset income with losses all the way to $0, loss carryforward is time limited, but you can also carry back a few years. I'll keep my tax deferral and long term capital gains rates, thanks; but if I were a frequent trader, it seems like the alternate regime is simpler.
- marshray 5y ago
  I've read 10 or 20 books on trading and investing and never heard it explained like this. Thanks.

dcolkitt 5y ago

This is not correct. Wash sale rules apply unless you make a mark-to-market election in the prior year.

whydoineedthis 5y ago
true about the mark-to-market specific election, it does need to be done the year prior and makes things for the following year earlier. He will still get out of the tax bill though through documentation. > A trader must keep detailed records to distinguish the securities held for investment from the securities in the trading business. The securities held for investment must be identified as such in the trader's records on the day he or she acquires them (for example, by holding them in a separate brokerage account).
simplerman 5y ago
Except for the first year in business, you can make that selection at the tax time of current taxes. EDIT: I am wrong: https://www.optionstaxguy.com/mark-to-market https://www.optionstaxguy.com/mark-to-market

EMM_386 5y ago

> but they don't apply to day traders How does this work for bot trading? Is that considered day trading? Crypto bots are popular. When you trade cryptocurrency for another crypto, you are taxed on the value at which you sold it in USD, net the amount for which you purchased it in USD. Would this be done mark-to-market? I'd imagine a lot of traders thinking they can easily plug in the latest bot into their Binance account are in for a surprise when they see the size of the return they have to file. I'm only talking about the US regulation here.

astrange 5y ago
Wash sale rules (the problem here) don't apply to crypto because it's considered property and wash sales only apply to "stocks and securities". You can definitely get into trouble if you do something like sell at a gain at the end of the year and instantly lose it all though.

GloriousKoji 5y ago

Slight off topic but how does one find a good CPA when they don't have access to trusted referrals?