I have been trading options for a few months now and tax season is around the corner. I made some profits but also had losses.
This will be my first time handling trading taxes. What records do I need to keep? Are there basic rules beginners should follow when it comes to taxes?
Save every trade confirmation email and screenshot your positions before closing. Broker tax forms have errors all the time - you’ll need backup when numbers don’t match. Most options get taxed as short-term gains since hardly anyone holds them over a year. Complex spreads are where it gets messy - some legs might be short-term, others long-term. If you’re doing anything beyond basic calls and puts, don’t try figuring this out yourself.
Get tax software that handles trading or find a CPA who knows options. What you spend on proper help will save you way more later.
Track everything but don’t stress too much about small trades under $100.
Keeping track of tax records is crucial to avoid issues later on. Document every trade with details like entry and exit dates, amounts, and your profits or losses.
While your broker provides tax documents, it’s wise to cross-check them with your records. The IRS has specific rules for options based on the holding period.
If you’ve made significant gains, consider consulting a tax professional. Their expertise can be very helpful.
Options are taxed as short-term or long-term capital gains based on the holding period. Brokers provide 1099 forms; verify them against your records. Active traders may choose mark-to-market treatment.
First year trading? I panicked and overpaid taxes because I didn’t track my losses.
Now I keep a basic spreadsheet: trade date, strike, premium, outcome. Last April this saved me hundreds - used my AAPL call wins to offset those awful Tesla puts.
Watch out for wash sales though. Buy the same strikes within 30 days and you’re screwed.