Tax accounting and other related issues. Insuring your portfolio and other personal interests.



IS EXERCISED: Add the cost of the call to the basis of the stock purchased.     The writer (Seller) must increase the amount realized on the sale of the stock by the amount received for the call.

IS EXPIRED:    Report the cost of the call as a capital loss on the date it expires. The writer must report the amount received for the call as a short-term capital gain.

IS SOLD BY THE HOLDER: Report the difference between the cost of the call and the amount received for it as a capital gain or loss. The writer is not affected.



IS EXERCISED: Reduce the amount realized from the sale of the underlying stock by the cost of the put. The writer must reduce the basis in the stock purchased by the amount received for the put.

IS EXPIRED: Report the cost of the put as a capital loss on the date it expires. The writer must report the amount received for the put as a short-term capital gain.

IS SOLD BY THE HOLDER: Report the difference between the cost of the put and the amount received fo it as a capital gain or loss. The writer is not affected.

STRADDLES: Generally, a taxpayer can deduct a loss on a straddle upon disposition of one or more positions only to the extent the loss is more than any unrecognized gain on offsetting positions. Unused losses are treated as sustained in the next tax year.



Gain or loss is not realized until the short sale is closed by the delivery of the property. The gain or loss is either long-term or short-term depending on the length of time the property was held.



Cost basis: Can only be used if the taxpayer did not previously use an average basis for a sale of other shares in the same mutual fund. The adjusted basis of specific shares can be used to figure gain or loss if those shares are adequately identified.

If the shares sold cannot be identified, the oldest shares owned are considered to be sold first.

Average basis: Average basis can be used only if the taxpayer acquired the shares at various times and prices, and the shares are held in an account handled by a custodia or agent who acquires or redeems those shares.

Two methods are available: Single-Category method: Includes all shares owned at the time of each sale, regardless of holding period. The sale may generate short-term and long-term gains or losses.    Double-category method: All shares in an account at the time of each sale are divided into two categories, short term and long term. The average basis per share is calculated for each category.

Transfer of mutual fund shares: Any exchange of shares in one fund for shares in another fund is treated as a sale, even within the same family of funds.

The taxpayer must report undistributed capital gains reported on form 2439. Dividends are reported as income.

Addition to basis: Increase the shareholder’s basis in mutual fund shares by the difference between the amount of the undistributed capital gain included in income and the amount of tax considered paid by the shareholder on that income.

Non dividend distributions: A return of the shareholder’s investment or capital in the mutual fund.

Reduction in basis:  Decrease the shareholder’s basis in mutual fund shares by any non dividend distributions received. If a shareholder’s basis is reduced to zero, any further non dividend distributions must be reported as capital gain on Schedule D.

The fees and charges paid to acquire or redeem shares of a mutual fund are not deductible.




Investment Income/ loss from stocks

Some terms to be aware of when it comes to tracking your stock sales.

Basis– The purchase price plus any costs of purchase or sale like commissions and fees. You reduce your basis when you receive non-taxable distributions. If you are purchasing shares little by little at various times you can use an average basis.

Stock splits– If you receive additional stock from a stock split you must use the following formula to calculate the basis on the new stock: [adj basis (old) x (#shares old / #shares (New)]

Wash Sale – A wash sale is when a stock is sold at a loss and, within 30 days before or after the sale, substantially identical stock is bought. This is not deductible. The loss is added to the basis of the new stock purchased.

You figure the gain or loss by subtracting the adjusted basis of stock sold from its sales price. Use form 8949.

Use form 1099-B Proceeds from Broker or Barter Exchange Transactions for reporting gains and losses.
Holding a capital asset one year or less is considered short term gain/loss. If over 1 year than it is considered long term.


** A hand written 1099 is ok in certain circumstances, but you will be asked in a sworn written statement to attest to its authenticity.



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