cost basis |Form 8949 Capital Gain & Wash Sales calculator software

Cost Basis


The basis of property you buy is usually its cost. The cost is the amount you pay in cash, debt obligations, or other property or services.

Unstated interest. If you buy property on a time-payment plan that charges little or no interest, the basis of your property is your stated purchase price, minus the amount considered to be unstated interest. You generally have unstated interest if your interest rate is less than the applicable federal rate. For more information, see Unstated Interest and Original Issue Discount (OID) in Publication 537.

What’s New in TradeMax™ Ver 2010


Most of the new features in version 2010 relate to expanded corprate event module and option cost basis auto adjustment and Reporting capability, especially when it comes to tax reporting.  There currently is no other trader tax software that comes even close.

Feature: Benefit:
Intelligent Option Cost Basis Adjustment Auto- detecting Assigned, exercised and expired option, also defers cost to corresponding shares with its Option Adjustment function.
Comprehensive Corporate Events Module keep track of cost basis adjustments due to corporate actions like splits, spin-offs, and mergers. By using this feature, investors can view all of their transactions that have occurred in this particular symbol such as Return of capital, Reinvested Income and Dividend paid on Short Sales which provide you with the facility to conduct transactions more accurately and adjust your trade for tax purpose by maintaining the trade history.
Powerful Forex Rates Wizard Auto-convert the transactions under Non-USD currency into USD figures using downloaded Forex Rates
Price History Module tracking the price history of the security you downloaded and generate unrealized gain/loss report
support online borker Download data from broker server with one click

Free Registration Code of TradeMax 2010 Basic


Neutral Trend Inc. is pleased to announce that they will offer a free registration code of TradeMax® 2010 Basic edition to the fans of their twitter and Facebook to commemorate their 3rd anniversary of TradeMax brand launching.

“This will be the first free Wash Sale software which generates Schedule D form in the market.” Neutral Trend said. “We noticed when the tax season is coming, many users consume tremendous time to prepare Schedule D form, especially there are Wash Sale trades involved. We are trying to help.”

TradeMax®, a brand launched 2 years ago, is a full featured tax software specially designed for active traders to manage their portfolios who have single or multiple accounts. It also provides normal traders with features to auto-generate a Schedule D or Mark to Market Form 4797 within seconds. With TradeMax®, users can easily track portfolio performance and adjust cost for stock positions with CALL/ PUT options (including the new 21-character OIS symbol) assigned or exercised. TradeMax® can also handles corporate events to calculate cost basis compliant with Wash Sale rules.

“Wash Sale Software normally costs from $50 to $200, we will give out TradeMax 2010 Basic edition registration code, a $69 value, free for a limited time. This offer will expire on September 12th , while supplies last.” Neutral Trend said. “A little effort needed to get our free registration code. The registration code will be announced using Twitter under user ID “itrademax”, and on Facebook using ID “trademax” Neutral Trend iTrademax”. For those don’t have Twitter or Facebook access, we will soon release a Youtube clip with a registration code embedded.” Youtube clip can be searched using keyword “TradeMax”.
——-This offer will expire on September 12th 2010 ———————
regname:trademax201006b
regcode:000015-U59V4Z-62UY2T-JEQAA5-54MRZZ-GXPHU5-2F310D-HV4VUK-2GJ81C-02DG3B
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“TradeMax® is a feature-rich software and it is very easy to use. We encourage user to review our flash demo at http://www.itrademax.com/demostration/key-features.htm, User can access our online tutorial section at http://www.itrademax.com/ipress/quick-start/online-tutorial.htm. Registered user also receives unlimited time technical support, our team can be contacted to guide user through learning curve.” Neutral Trend emphasized. “Our developing team is working on adding a Option Analysis module, a function might costs a few thousands if buying other software. This feature is scheduled to be released in later this year.”

Neutral Trend Inc devotes to tailor TradeMax to better cater for the needs of active traders, any feedbacks are appreciated!

The key features of TradeMax® 2010 Basic edtion include the following:

  • Track your trade
  • Record various corporate events such as stock split, merge, spinoff, reinvested capital
  • Auto-detect assigned, exercised and expired option, defer cost to corresponding shares
  • Auto-identify 21-character new OIS option symbol
  • Auto-convert the foreign transaction (Non-USD) into USD figures
  • Download price history of securities for your comparing.
  • Monitor your capital gain easily
  • Setup and Combine different accounts to monitor your capital gains
  • Filter items you don’t want in Black list
  • Run various reports (Up to 13) to monitor your capital gains and losses.
  • Calculate various complicated Wash Sale scenarios accurately.
  • Prepare schedule D
  • Support importing trade data from most common-used brokers directly or the downloaded data in various formats.
  • Use strict FIFO trade matching as a default method
  • Force-Match specific trade transactions
  • Assign short trade, convert short / long position
  • Basic Edition Support 200 transaction records per year.

All TradeMax® 2010 products are available today

Company web-site: http://www.itrademax.com

Direct download link: http://www.itrademax.com/download.htm

E-mail: support@itrademax.com

Capital Gain


Capital Gain

A capital gain is profit that generates when the price of a security held by a holder rises above its purchase price and the security is sold (realized gain). If the security continues to be held, the gain is unrealized. A short-term capital gain is the profit realized on a security held for one year or less. A long-term capital gain is the profit realized on the sale of a security held for more than one year.

How to Calculate Short- and Long-Term Capital Gains

How Capital Gains Tax is Calculated

How TradeMax Can Help Investors Calculate Capital Gains

How to Calculate Short- and Long-Term Capital Gains

The basic rule for calculating capital gains is the sales price minus the cost of selling less the adjusted tax basis (cost basis), which equals the taxable capital gain or loss.

The Taxpayer must classify the gains and losses as either ordinary or capital gains or losses, then calculate net short-term capital gains against short-term capital losses to get a total short-term capital gain or loss.
If the capital losses exceed capital gains, the amount of the excess loss that can be claimed is the lesser of $3,000, ($1,500 if you are married filing separately) or your total net loss as shown on line 16 of the Form 1040 Schedule D, Capital Gains and Losses. If your net capital loss is more than this limit, you can carry the loss forward to later years until they are used up. Use the Capital Loss Carryover Worksheet to figure the amount carried forward. But short-term and long-term capital loss which carried over previous year only deduct the short or long term capital gains in this year seperately.

How Capital Gains Tax is Calculated

In the United States, individuals and corporations pay income tax on the net total of all their capital gains just as they do on other sorts of income. Capital gains are generally taxed at a preferential rate in comparison to ordinary income. The amount an investor is taxed depends on both his or her tax bracket, and the amount of time the investment was held before being sold. Short-term capital gains are taxed at the investor’s ordinary income tax rate, and are defined as investments held for a year or less before being sold. Long-term capital gains, which apply to assets held for more than one year, are taxed at a lower rate than short-term gains. In 2003, this rate was reduced to 15%, and to 5% for individuals in the lowest two income tax brackets. The long-term capital gains are included when figuring out the investor’s tax bracket. However, the 5 or 15% rates do not apply to all long-term capital gains. Long-term capital gains on collectibles, some types of restricted stock, and certain other assets are instead subject to a minimum 28% rate. These reduced tax rates were passed with a sunset provision and are effective through 2010; if they are not extended before that time, they will expire and revert to the rates in effect before 2003, which were generally 20%.

The tax payers also should note that corporate actions such as stock split, stock merge, spin off can cause cost basis changes. That implies that the purchase price is not the cost basis. To track and monitor such actions can help investors understate capital gains leaving them liable for back taxes, interest and other penalties.

The wash sale generated during the buys and sells of a stock also contribute to the cost basis changes. A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

Buy substantially identical stock or securities,

  • Acquire substantially identical stock or securities in a fully taxable trade,
  • Acquire a contract or option to buy substantially identical stock or securities, or
  • Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.

A wash sale will defer losses (possibly increasing capital gains tax due) and increase the cost basis of the new tax lot.

Generally, the proceeds of any stock, bond, or other securities sold during the year will be reported on IRS Form 1099-B by the brokerage or financial institution that carried out the sale.

How TradeMax Can Help Investors Calculate Capital Gains

TradeMax provides tax lot functions to help investors calculate capital gains tax. TradeMax tracks investments and automatically adjusts for wash sales and corporate actions. TradeMax matches tax lots and calculates capital gains and losses. It also characterizes capital gains and losses as short or long-term. This information is then used to produce the Schedule D.

Corporate Action


Corporate Action

Stock Splits, dividends, mergers, acquisitions and spinoffs are all examples of corporate actions. For example, a company may decide to split its shares 2:1, leaving shareholders with twice as many shares as they had before. In many cases, a corporate action will result in a new position or a change to the cost basis of the security.

As a result, investors should make necessary cost basis adjustments for each security. With thousands of corporate events that affect a stock’s cost basis, the odds are good that an investor will encounter one sooner or later. some corporate actions are easy to manage, while some need more manual calculations. As every corporate action type has its own rules, the investors must learn if they want to fill their Schedule D forms accurately.

Wash sale activity can further complicate the arduous task of tracking and adjusting for corporate actions. TradeMax’s wash sale algorithms are synchronized with corporate action activity to alleviate this problem.

Cost Basis


Cost Basis

Cost basis, as used in United States tax law, is the original cost of property, adjusted for factors such as depreciation. When property is sold, the taxpayer pays/(saves) taxes on a capital gain/(loss) that equals the amount realized on the sale minus the sold property’s basis.

From Publication 551: “Basis is the amount of your investment in property for tax purposes. Use the basis of property to figure depreciation, amortization, depletion, and casualty losses. Also use it to figure gain or loss on the sale or other disposition of property.”

The cost basis of any investment is the original value of an asset adjusted for stock splits, dividends and capital distributions. It is used to calculate the capital gain or loss on an investment for tax purposes. The calculation of cost basis can be complicated, however, due to the many changes that will occur in the financial markets such as splits and takeovers.

For example: If the company splits its shares, this will affect your cost basis per share. Remember, however, that while a split changes an investor’s number of shares outstanding, it is a cosmetic change that affects neither the actual value of the original investment, nor the current investment. Continuing with the above example, imagine that the company issued a 2:1 stock split where one old share gets you two new shares. You can calculate you cost basis per share in two ways: First, you can take the original investment amount ($10,000) and divide it by the new amount of shares you hold (2,000 shares) to arrive at the new per share cost basis ($5 $10,000/2,000). The other way is to take your previous cost basis per share ($10) and divide it by the split factor (2:1). So in this case, you would divide $10 by 2 to get to $5.

How TradeMax Can Help with Cost Basis

TradeMax can help with cost basis calculations. Investors enter original buy and sell transactions into TradeMax. TradeMax will allow you to match sell transactions against appropriate tax lots, and adjust positions and cost basis for corporate actions and wash sales manually.

When importing trade information from some brokers, users may receive baseline positions. These are positions that investors held open at the time their brokers sent their trade data. In order for TradeMax to accurately calculate gain/loss figures, users need to input their cost basis and purchase dates for these baseline positions.

Merger


Merger

Merger is when two companies combine together to form a new company all together.  Mergers can be taxable or non-taxable. If a merger is taxable, you will need to realize an “artificial” sale and re-purchase the security. For a non-taxable merger, you will need to allocate the cost basis to the new security.

TradeMax allows to adjust each of your investments. In many cases, a corporate action, such as a merger, will result in a new position or a change to the cost basis of a security.

Schedule D


If you sold a stock or other property, regardless of whether you made or lost money on it, you have to file Schedule D. This two-page form, with all its sections, columns and special computations, looks daunting and it certainly can be.
Schedule D –A U.S. income tax form used by taxpayers to report their realized capital gains or losses.  Investors are required to report their capital gains (and losses) from the sales of assets, which result in different cash values being received for them than what was originally paid, in order to affix some amount of taxation to the income and wealth that is generated through investment activities.

Calculating Capital Gains and Losses on the Schedule D

A frequently asked question by investors during tax time is how to calculate capital gains and losses on the Schedule D. Unfortunately, the answer is not a simple one.

The basic principle in calculating capital gains or losses is to subtract the cost to purchase a security from the proceeds of selling it. Gains from investments held for more than one year are taxed at the more favorable capital gains rate of no higher than 15%. Investments held less than a year are treated as ordinary income and taxed at the personal income tax rate as high as 35%. If investors have net loss positions for the year, the IRS will allow them to write off a loss of up to $3,000 against their income. All other losses can be carried forward to future years.

Further complicating the task of manually completing the Schedule D is identifying wash sales and corporate actions that have affected securities in an investor’s portfolio and making the necessary cost basis adjustments to these securities.

Stock Split


Stock Split

A stock split is one of  corporate actions that happens when a company changes the amounts of shares and adjusts the share’s price accordingly. A stock split  increases or decreases the number of shares in a public company. The price is adjusted such that the before and after market capitalization of the company remains the same and dilution does not occur.

For example, a company with 100 shares of stock priced at $20 per share. The market capitalization is 50 × $20, or $1000. The company splits its stock 2-for-1. There are now 100 shares of stock and each shareholder holds twice as many shares. The price of each share is adjusted to $10. The market capitalization is 100 × $10 = $1000, the same as before the split.

Stock splits are usually non-taxable. It is important to note that after a stock split, the number of shares you own in the security and the cost basis of those shares will change. Often stock splits are expressed as a fraction.  A two-for-one stock split is the most common – the investor receives one additional share for every share owned in the security.

Wash Sale


A wash sale occurs when you sell a security at a loss but then repurchase it within 30 days at the low price.The subsequent purchase could occur before or after the security is sold, creating a 61-day window that must be monitored to identify wash sales.

IRS Explanation of Wash Sales

Wash Sale Example

How to determine Substantially Identical?

What the Wash Sale Rule Really Means to Investors

 

IRS Explanation of Wash Sales

wash sale occurs when you sell or otherwise dispose of stock or securities (including a contract or option to acquire or sell stock or securities) at a loss and, within 30 days before or after the sale or disposition, you:

  • Buy substantially identical stock or securities,
  • Acquire substantially identical stock or securities in a fully taxable trade,
  • Enter into a contract or option to acquire substantially identical stock or securities, or
  • Acquire substantially identical stock or securities for your individual retirement arrangement (IRA) or Roth IRA.

You cannot deduct losses from wash sales unless the loss was incurred in the ordinary course of your business as a dealer in stock or securities. The basis of the substantially identical property (or contract or option to acquire such property) is its cost increased by the disallowed loss (except in the case of (4) above). For more details on wash sales, see Pub. 550.

Report a wash sale transaction on line 1 or 8. Enter the full amount of the (loss) in column (f). Directly below the line on which you reported the loss, enter “Wash Sale” in column (a), and enter as a positive amount in column (f) the amount of the loss not allowed.

 

Wash Sale Example

Example 1.

You buy 100 shares of XYZ for $1,000. You sell these shares for $750 and within 30 days from the sale you buy 100 shares of the same stock for $800. Because you bought substantially identical stock, you cannot deduct your loss of $250 on the sale. However, you add the disallowed loss of $250 to the cost of the new stock, $800, to obtain your basis in the new stock, which is $1,050.

 

Example 2.

You are an employee of a corporation that has an incentive pay plan. Under this plan, you are given 10 shares of the corporation’s stock as a bonus award. You include the fair market value of the stock in your gross income as additional pay. You later sell these shares at a loss. If you receive another bonus award of substantially identical stock within 30 days of the sale, you cannot deduct your loss on the sale.

 

How to determine Subtantially Identical?

 

when determining whether stock or securities are substantially identical, you must consider all the facts and circumstances in your particular case. Ordinarily, stocks or securities of one corporation are not considered substantially identical to stocks or securities of another corporation. However, they may be substantially identical in some cases. For example, in a reorganization, the stocks and securities of the predecessor and successor corporations may be substantially identical.

Similarly, bonds or preferred stock of a corporation are not ordinarily considered substantially identical to the common stock of the same corporation. However, where the bonds or preferred stock are convertible into common stock of the same corporation, the relative values, price changes, and other circumstances may make these bonds or preferred stock and the common stock substantially identical. For example, preferred stock is substantially identical to the common stock if the preferred stock:

  • Is convertible into common stock,
  • Has the same voting rights as the common stock,
  • Is subject to the same dividend restrictions,
  • Trades at prices that do not vary significantly from the conversion ratio, and
  • Is unrestricted as to convertibility.

 

What the Wash Sale Rule Really Means to Investors

 

If you are an active trader in a particular stock, it is very necessary for you to track your trades and monitor your wash sales period before you re-purchase the same stock. If you suffered a loss, and you need to pay attention to the date you repurchase the substantially identical secuirty and still claim the earlier loss on taxes.

Manually tracking and figuring out the wash sale is really a time-consuming job for investors, but using a produce such as TradeMax can help manage your wash sale well, and avoid re-buying the same stock in wash-sale period.

While you will eventually realize losses deferred by wash sales, avoiding them in the first place will help you maximize your investment performance.

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