Wash sale |Form 8949 Capital Gain & Wash Sales calculator software

My broker provides cost basis report with wash sale adjustment, why do I still need to buy Trademax?


My broker provides cost basis report with wash sale adjustment, why do I still need to buy Trademax?

Someone asked me why investor could not use broker’s gain and loss report. Many brokers provide Gain and Loss report without considering the factor of WASH SALE RULES. Others claimed their Gain and Loss report compliant with WASH SALE RULES. Can you trust them? Never!

“I only had 5 trade a year, broker could not be wrong, so can I trust broker?” Never!

Here is a simple case with 2 trades involved. You placed a Limited Price Order with a broker, e.g. Scottrade. And you wanted to buy 1000 shares of XYZ at price of $10. I did not choose the option AON(all or none). Because it is a Limited Price Order, this order was not executed at once. At the day end, you got confirmation that my order was fulfilled by 2 transactions, a 500 shares buy at $10 and another 500 shares buy at $10. 1 week later, you sold 500 shares at $9 with a net loss of $500. Now, you have 3 transactions listed on year end statement. a 500 shares Open Long, a 500 shares Open Long and a 500 shares Close Long. Any broker who claims they have WASH SALE RULES built in their Gain and Loss reports, will report that you have $0 capital loss. It is WASH SALE RULES that your $500 loss is disallowed because you have bought 2nd 500 shares as replacement shares. However, this is a wrong result! Your real intention is to buy 1000 shares, the 2nd 500 shares is never an intention of replacing 1st 500 shares for continually holding. In real world, no broker will fix this kind of error for you. Their statement always list multiple transactions when a Limited Price Order executed in several transactions.

You can use software like TradeMax to alter transaction record downloaded from broker and use TradeMax Merge Transaction function in TradeMax to merge transactions when above mentioned scenario applied. In that case, you will have a 1000 share buy and a 500 shares sell in trades database. Software will generate a Form 8949 with $500 loss.

According to the definition of Wash Sale in IRS publication 550:

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:

1. Buy substantially identical stock or securities.

2. Acquire substantially identical stock or securities in a fully taxable trade.

3. Acquire a contract or option to buy substantially identical stock or securities.

The full publication can be found by contacting your local IRS office or visiting the IRS Web site at www.irs.gov

In 2008, the IRS issued Revenue Ruling 2008-5.In this ruling, IRS said, If an individual sells stock or securities for a loss and causes his or her individual retirement account or Roth IRA to purchase substantially identical stock or securities within 30 days before or after the sale, the loss on the sale of the stock or securities is disallowed.

When you calculate cost basis with wash sale adjustment, you need to combine all investments accounts owned or controlled by you, including your spouse’s account or any corporate account you control.

The wash sales rule also applies to short trade.

We rephrase Wash Sale Rule in a easy understandable sentence. “A Wash Sale occurs if you close an open position (An open position could be a long position or a short sale) of stock or securities at a loss and within 30 days, before or after the sale, you acquire an open position of substantially identical stock or security as a replacement in any associated account.”

In certain circumstance, substantially identical stock or security could include but not limited to

  1. Same stock listed in different stock exchange
  2. Same stock with certain type of preferred shares
  3. Trades between stock and option with same underlying
  4. Trades between stock and future/warrants with same underlying
  5. Trades between certain type of call options and put options at different strike price etc.
  6. Trades between securities with same security type but different orientation(Long and Short should be treated differently)
  7. Trades between certain securities issued by the same company

TradeMax allows users to make their own definition of substantially identical stock or security to suit various customer needs.

The wash sale rule aims to prevent an investor from obtaining the benefit of a tax loss without materially reducing economic exposure to the investment, so that investors cannot deduct losses from sales or trades of stock or securities when wash sale rules apply.

If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities begins on the same day as the holding period of the stock or securities sold.

The above description above refers to http://www.irs.gov/publications/p550/ch04.html#en_US_publink100010601

Now, many brokers have provided detailed cost basis report with calculated wash sales, but have confined themselves to reporting the wash sales within the same account and for the same CUSIP; in such cases, taxpayers are responsible for reporting wash sales for identical as well as substantially identical securities, across all owned taxable accounts. As for different and complicated wash sale scenarios, the cost basis report and wash sale calculated is far from accurate and completeness.

Definition of substantially identical securities TradeMax Broker Cost Basis Report Other Tax Software
Securities with same CUSIP Supported Supported Supported
Same stock listed in different stock exchange Supported Not Supported N/A
Same stock with different preferred shares Supported Not Supported N/A
Trades between stock and option( if the underlying stock is the same) Supported Not Supported Limited function
Trades between stock and stock future ( if the underlying stock is the same) Supported Not Supported Limited function
Trades across different accounts and joint accounts Supported Not Supported N/A
Trades between call option and put option at different strike price etc. Supported Not Supported Limited function
Trades between securities with same security type but different orientation Supported Not Supported N/A
Trades between securities issued by the same company Supported Not Supported N/A

TradeMax can not only auto-identify different complicated wash sale scenarios, but also can calculate wash sales across different accounts very accurately. With TradeMax, the users can maximize profits and figure out the disallowed losses and deductable losses by TradeMax which strictly coincides with the Wash Sale Rule of IRS. Inaccurate report means intangible losses in time and money which can be saved by using TradeMax’.

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
———————————————————–

“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

Wash Sale Detail Report


Wash Sale Detail Report– If you wish to analyze your disallowed wash sale losses that have been deferred to next year, you may run this report. It will show you the baseline position contains open position and Wash sales defer position.

    Click the item Wash Sale Detail Report and you will get the following report preview:

    Basic Function
    Short Term Capital Gain Display all short term baseline position contains open position and Wash sales defer position.
    Long Term Capital Gain Display all long term baseline position contains open position and Wash sales defer position.
    Total Amount The actual Capital Gain amount in the current account. It contains the Short Term Capital Gain Total and Long Term Capital Gain Total.

    Note: With using the Rounding method, it could be error within 0.01.

    Total Wash Sales Defer to Next Year Display the amount of wash sales deferred to next year

Options


Option Dialog box provides the users with possible setting for TradeMax , the users can set different preference for account according to their requirement in General option , filter some unwanted information when running specific reports in Black list option, set your own washsale calculation rule to apply to your own wash sale scenarios in Wash Sale option.

The following wizard will tell you how to make your own settings based on your needs in different options.

  1. Click main button , and a main menu opens:
  2. Click Options button, the following dialog box displays:

Function
Description
General Tab Users can set the basic setting and possible preference after clicking General Tab. This is the default option.
Wash sale Tab Set your own calculation rule for your transactions by clicking Wash Sale Tab.
Black List Tab TradeMax provides you with Black List to filter some information of various reports. With this feature, you can choose to display the information you want by selecting transaction type or Security Ticker to generate the specific report.
Avg Basis Tab TradeMax allow you use Average Basis Method For Mutual Fund Cost Basis Calculating. With this feature, You can figure your gain or loss using an average basis only if you acquired the funds at various times and prices.
Name Enter your name, the name will display in your generated reports
SSN Enter your Social Security Number.
Turn Automatic LiveUpdata on (recommended) You can check the box on the left side to activate Live Update Function, and each time you run TradeMax, the automated Live update dialog box will pop up.
Automatically Scan for Trades You can check the box on the left side to activate Auto Scan function, TradeMax will auto scan your imported transaction.
Exercised / Assigned security ‘s buy/ sell price must be the same as strike price of option You can check the box on the left side to activate the function, TradeMax will auto-match your Exercised/ Assigned securities’ Buy/Sell price with the strike price of option.
Auto Expire unexercised / unassigned options at 0 price on Expiration Date You can check the box on the left side to activate the function, TradeMax will auto expire unexercised/ unassigned options at 0 price on expiration date.
Auto Assigned / Exercised Option to Stock after Split / Reserve Split Event You can check the box on the left side to activate the function, TradeMax will auto assigned / exercised option to stock after split / reserve split event.
Transaction Amount Tolerance Value You can enter a transaction tolerance value to allow transactions to exceed amount within certain tolerances.TradeMax follow the calculation as the formula : Amount = Price * Quantity + Commision , if your abs(Amount – Price * Quantity – Commision)>tolerance value, trademax will give you a warning message.
Long Term Capital Gain Holding Period The default long term capital gain holding period is One year.
Tax Currency The default Tax currency is USD.
Clear Report Cache Every time you run reports in TradeMax, the database will leave report cache which sync the change of the report data . If your report data cache occupies too much space , you can click this button to clear Report Cache. Your report cache will be cleared, but the new report cache will be generated when you run reports once more.
Database Path Click to view your database path.

 

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