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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 f

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 6y 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 6y 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 6y 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 6y 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 6y 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 6y 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 6y ago
        You didn't actually have a loss that year (to offset gains)
    - deleted 6y ago
      [deleted]
toast0 6y 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 6y ago
  I've read 10 or 20 books on trading and investing and never heard it explained like this. Thanks.

rmah 6y 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 6y 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 6y 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 6y 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 6y 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 6y 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 6y ago
      You didn't actually have a loss that year (to offset gains)
  - deleted 6y ago
    [deleted]

toast0 6y 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 6y ago
I've read 10 or 20 books on trading and investing and never heard it explained like this. Thanks.