Option Profits & Taxes


D

DB

Option trading in 2008. Probably about 50 trades with $10K. Made about
$7K. Pulled principal (10K) in fall and had all earnings (7K) in other
options on 12/31/08. Current value of option on 12/31/08 was only about 2K.
What do I pay taxes on, 2K or 7K? Thanks. DB
 
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S

Steve Pope

DB said:
Option trading in 2008. Probably about 50 trades with $10K.
Made about $7K. Pulled principal (10K) in fall and had all
earnings (7K) in other options on 12/31/08. Current value of
option on 12/31/08 was only about 2K. What do I pay taxes on,
2K or 7K? Thanks. DB
With rare exceptions, and assuming you do not have mark-to-market
status as a trader which is unlikely, you pay taxes for 2008 only
on positions that were closed out in 2008. So, probably on the 7K
given what you've described. You will want to pay by Jan 15, 2009
in most cases. When you file you will have to identify each
position and its gain/loss and report those.

(I am not aware of exceptions to this for micro-traders, but
perhaps others here have relevant experience.)

Steve
 
D

DB

Steve Pope said:
With rare exceptions, and assuming you do not have mark-to-market
status as a trader which is unlikely, you pay taxes for 2008 only
on positions that were closed out in 2008. So, probably on the 7K
given what you've described. You will want to pay by Jan 15, 2009
in most cases. When you file you will have to identify each
position and its gain/loss and report those.

(I am not aware of exceptions to this for micro-traders, but
perhaps others here have relevant experience.)

Steve

--
OK, so let's say I pay taxes on the 7K for 2008. If, this year, I close out
all the positions for 2K, do I get to deduct 5K from my 2009 W-2 earnings
(if there's no short-term capitol gains)? DB
 
S

Steve Pope

OK, so let's say I pay taxes on the 7K for 2008. If, this
year, I close out all the positions for 2K, do I get to deduct
5K from my 2009 W-2 earnings (if there's no short-term capitol
gains)? DB
If you have no capital gains in 2009, and 5K of capital loss,
there's a 3K limit on the capital loss you can report in 2009.
The other 2K of loss gets carried forward to 2010.

Steve (not a tax professional)
 
R

Rich Carreiro

DB said:
OK, so let's say I pay taxes on the 7K for 2008. If, this year, I close out
all the positions for 2K, do I get to deduct 5K from my 2009 W-2 earnings
(if there's no short-term capitol gains)? DB
Not unless the $3000 capital loss limit rule is repealed.
Assuming no other transactions, you'd have a $5000 capital
loss. You take (no choice) $3000 of that against your other
income (including wages) and carry the remaining $2000 of
loss to 2010.
 
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D

DB

Rich Carreiro said:
Not unless the $3000 capital loss limit rule is repealed.
Assuming no other transactions, you'd have a $5000 capital
loss. You take (no choice) $3000 of that against your other
income (including wages) and carry the remaining $2000 of
loss to 2010.
I guess 3K is better than nothing. Seems I should have liquidated on 12/31!
Thanks guys! DB
 
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