Are Wash Sales Affecting Your Bottom Line?
Understand how to avoid a tax disaster at year-end.
As the tax year comes to an end, it’s important to understand wash sale effects on your bottom line and any potentially disastrous consequences on your taxable gains from trading. If relying solely on broker 1099-B reporting, you may learn you’re in trouble only after it’s too late to change course. Like striking an iceberg, wash sales may leave you sinking in unwanted tax liability.
Using TradeLog, you can navigate through wash sales. First, understand what danger you are looking for. Then see how wash sales affect your bottom line and utilize reporting tools to help you potentially control and avoid harmful results before its too late.
How wash sales can hurt:
Wash sales may result in losses deferred to the next tax year. Reduced losses in turn may increase taxable gains. Some traders even have a taxable capital gain when they actually had a net loss for the year. Nobody wants to pay taxes on money they didn’t make, so this can be harmful.
Wash sales triggered by IRA trades are always harmful. The IRS has special rules for IRA trades which trigger a wash sale in a taxable account. Rather than deferring the loss to a future date, the IRS says the loss is permanently disallowed. If you trade the same securities in your taxable and non-taxable accounts, then it’s important to carefully monitor potential wash sales all year long.
What to do right now:
Using the TradeLog application you can import your trade activity for all accounts year-to-date. Make any needed adjustments for corporate actions, exercised options, etc. Then, run your tax reporting across all accounts to reveal your taxable capital gain/loss and notice the wash sale amounts. The Wash Sales Detail Report also provides a breakdown of wash sales that occurred. If wash sales are resulting in higher taxable gains, take action if possible.
TradeLog’s Potential Wash Sales Report can be used to identify possible action to avoid harmful wash sale effects. This may include closing positions which have large amounts of wash sale deferrals attached to them. You may also need to avoid trading certain securities if there was a large loss in the past 30 days.
Want to learn more about controlling your wash sales?
We have four videos on our YouTube channel explaining wash sales, how they affect active traders, and how to control the effects. They are several years old, but still valid. Some traders have said they’re “the best videos on YouTube about wash sales” Check them out below and learn more in our Education topic.
Please note: This information is provided only as a general guide and is not to be taken as official IRS instructions. Cogenta Computing, Inc. does not make investment recommendations nor provide financial, tax or legal advice. You are solely responsible for your investment and tax reporting decisions. Please consult your tax advisor or accountant to discuss your specific situation.