Insider’s Guide to Options Trading Taxes, Part 2
Tax day has come and gone that doesn’t mean that we can’t start preparing in advance for next year by looking ways to reduce or minimize our tax exposure.
Today’s newest episode is Part 2 of 3 all about options trading taxes based on the questions that our members submitted.
We’ll continue to dive deep into your most requested topics and questions to make sure we’re getting the correct answers for you so that you can confidently move forward. Sure, taxes can be a little scary on the outside but our hope is that this mini-series will help give you some clarity.
Key Points from Today's Show:
- It is important to note, when trading inside of an IRA account and also trading in your personal name, you have to be aware of the wash sale rules.
- The wash sale rules prevent you from realizing losses and are triggered when you initiate a position in an option in your personal name, you sell it, and then you buy it back, but you buy it back in your IRA — within a 30 day trading period.
- With options, you will be subject to taxation once you close out on your positions; 99% of part time traders will be taxed on gains/losses when they actually happen.
- Professional traders are taxed at the end of the year based on the current value of their holdings — they do not have to close out on their positions to be taxed on the gains, or benefit from a loss.
- As a trader, commissions are not a current deductible expense, but you can benefit from commissions as you close out and the cost base of your position goes up.
- When it comes to eligible tax deductions, most part time traders forget to deduct business expenses or investment expenses such as: cost of newsletters or financial subscriptions, legal and advisory fees related to your investments, and your interest expense.