Option Profits & Taxes

[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

 

[P. Maffia]

$7K

 

[DB]

OK, so if I sell this year for 2k, do I get to deduct 5k from my 2009
earnings?

 

[P. Maffia]

NO! You get to deduct the losses against any gains. Then if there is any
loss left over, you get to deduct only up to $3,000 against regular income
and if any loss is left over, you carry it forward to future years until it
is all used.

Just as a point of information for everyone, You should understand the tax
implications of any financial activity you undertake BEFORE you engage in
the activity. Although tax consequences should never be the sole determinate
of what you do, you should understand them because not doing so could make
the difference between success or failure.

 

[DB]

I guess 3K is better than nothing. Seems I should have liquidated on 12/31!

 

[catalpa]

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

Were any of the options held on 12/31/08 Section 1256 contracts (index
options)? There are different tax rules for Section 1256 contracts, such as
year end mark to market.

 

[DB]

Were any of the options held on 12/31/08 Section 1256 contracts (index
options)? There are different tax rules for Section 1256 contracts, such
as year end mark to market.

No. They are mostly put options on individual stocks, ...mostly.