Hi, in 2010 I tried my hand at day trading for several months. I ended up with a net loss of about $200. However, my schedule D says a capital GAIN of $17,800!!! After looking into why, I found out about the "wash loss" rule. Basically most of the stocks I sold as a loss were NOT being counted as a loss.
So my question is, what should I do? Do I really owe tax on the 17,800? My tax bracket that year was 15%.
I'm sorry that I can't give you a 100% answer, only an opinion, but since no one else is responding I'll try and give it a go.
From what I've been reading, the short answer is it depends on when your day trading schedule ended, but no you wouldn't have to pay the tax on the 17k unless your trading went past Jan 2011. Reason being, your broker isn't responsible for wash sale transactions, so it is up to you to properly file your schedule D. An example would illustrate my point better than an explanation, so here goes:
Suppose you buy abc stock for $5k and sell it the same day for $4k. Then the next day, you buy abc stock again for $5k but sell this time for $6k.
Here's what you thought you did:
-$1000 on 1st transaction (-5000 + 4000)
+$1000 on 2nd transaction (-5000 + 6000)
$0 net difference
Here's what actually happened:
$0 on 1st transaction (wash sale)
$0 on 2nd transaction (-6000 + 6000)
$0 net difference
Notice that the loss from the 1st transaction was stacked onto the base for the 2nd transaction. The net result is the same. However if the 2nd transaction had occurred after Jan 1 2011, you could not calculate for the loss and you would then have to pay the tax, then claim the loss in next year's taxes.
This is how I've interpreted my findings, but I could be completely off the mark. I would love to hear a 2nd opinion on this from someone who has direct experience, as I will probably face the same situation next year myself. Thanks much!
In order to take your loss (this year) on the first transaction, you must have CLOSED your second transaction no later than December 31st AND you must REMAIN out of that stock for at least 30 days.
I always seem to forget the details, thanks for clarifying
It seems to me though that a day trader who could be involved in anywhere from 10-50 stocks per day would have one heck of a nightmare by year's end. Any tips for alleviating that headache other than keeping good records? I was thinking of calculating the "gain/loss" taxes daily (as a potential intraday trader) but it would be nice if there was some other mechanism available. Thanks again!