Handle your wash sales and generator your Schedule D

LAS VAGAS, NV – Mar 26, 2009

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Prepare your Schedule D with TradeMax
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Neutral Trend Inc. today announces TradeMax® 2.0, a full featured tax software specifically designed for active investors or traders to manage their trade data maximize their gain/loss strategy, prepare their Schedule D.

TradeMax® debuts innovative new tools that enable active investors or traders to effortlessly manage all their trades across various accounts.With customizable Vista® style “Views”. TradeMax® delivers important investment account information right to the desktop, without the need to access Internet. Users can manage their trade data, maximize their gain/loss strategy, prepare their Schedule D. It can import trade data from all kinds of formats files, monitor realized/unrealized gains & losses for current positions, adjust wash sales events, report capital gains/losses in printed Schedule D format or export to popular tax software such as TaxCut®, TurboTax®.

“The idea of this software came from a few active traders in our company. Traders are very busy in these days, and sometimes it is too time consuming to figure out Wash Sale trade between different accounts. A investor with more than 100 trades per year might ends up spend at least 20 hours to count their trades. Investors don’t like this hassle and they want to focus on the market” Neutral Trend said, “Fortunately, given our team’s rich experience (averagely 15+ years experience in the software industry), we are able to help our customer with delivery of this state-of-the-art trade software.  TradeMax® takes out the dirty work, so users can spend more time on their money-making investment activities.”

The new features of TradeMax® include the following:

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1. Track your trades: Users can setup different investment type accounts among whole family and manage trade data over years. TradeMax® tracks and categorizes trade data automatically. Users can view all investment accounts in one place. 

2. Data security: TradeMax®’data files are stored on computer in encrypted form. TradeMax®’s date can’t be viewed with third party text editor.

3. Calculate wash sales and Defer lose between different accounts: Users can combine different accounts into one to monitor specific investments.

4. Powerful importing module: TradeMax® includes lots of preset profile to support most brokers. Users can import data file with the following type extension: *.csv, *.txt, *.xls, *.qif, *ofx, *.qfx, *tlf., *tdf . TradeMax also provides a flexible format reorganization algorithm which allows users to customize their own format.

5. Multiple transaction lot matching methods: TradeMax® uses strict “First In, First Out” (FIFO) trade matching as a default method. TradeMax® also allows users to “Force-Match” specific trade transactions into particular tax lot.

6. Help maximize tax deductions: TradeMax® calculates various of Wash Sale scenarios, include but are not limited to, Wash Sale between identical securities (stocks and options), Wash Sales on an unequal number of securities and Wash Sale on Same Day Rule..

7. Simplify tax preparation: TradeMax® can assign short trades and convert short / long position, and calculates Wash Sale automatically. Users can export gains and losses to popular tax software programs support TXF format. TradeMax® generates Schedule D-1, Gain&Lose report, Wash Sale Detail Report and 1099 reference report.

8. Option symbol detection: TradeMax® can download Option data from Internet and identify Option symbol and related information like CALL/PUT type, size and expiration month etc.

9. Easy-to-use interface: Displays the Account List on the left side of the screen as a convenient way for you to monitor and manage your accounts and views. Symbol View helps you to manage your stock and stock options. Attractive report and screen interface.

10. Customization data view flexibility: TradeMax® allows users to build own view to manage data properly. Users can customize multiple filters to change the way of viewing account.

“We are adding new feature on daily basis, we suggest our users to visit our website frequently for updates.” Neutral Trend said.

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Pricing and Availability

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TradeMax® Basic is available at an estimated price of $69.00 USD per 12 months subscription. TradeMax® Standard is available at an estimated price of $119.00 (U.S.). TradeMax® Deluxe is available at an estimated price of $169.00 USD per 12 months subscription. TradeMax® Premier is available at an estimated price of $297.00 USD per 12 months subscription. All TradeMax® products have trial version free for download online. Trial version has no expiration date, but it only generates report for transaction between Jan to Jun.

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All TradeMax® products are available today at http://www.itrademax.com.
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TurboTax®, among others, are registered trademarks and/or registered service marks of Intuit Inc. or one of its subsidiaries.

TaxCut® is a registered trademark of HRB Innovations, Inc.

Microsoft®, Windows®, Windows XP® and Windows Vista® are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other countries.

TradeMax®  and TradeMax® logos are trademarks and/or registered trademarks of Neutral Trend Inc.

Other product names used herein are for identification purposes only and might be trademarks of their respective companies. We disclaim any and all rights to those marks.

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Statement: The derivation of this post is from www.fairmark.com

The wash sale rule can apply to trades involving stock options.

Options present two different types of problems in connection with the wash sale rule. First, if you sell stock at a loss, you can turn that sale into a wash sale by trading in options. And second, losses from the options themselves can be wash sales.

Buying Call Options

If you sell stock at a loss, you’ll have a wash sale (and won’t be able to deduct the loss) if you buy substantially identical stock within the 61-day wash sale period consisting of the day of the sale, the 30 days before the sale and the 30 days after the sale. You’ll also have a wash sale if, within the wash sale period, you enter into a contract or option to buy substantially identical stock.

Example: On March 31 you sell 100 shares of XYZ at a loss. On April 10 you buy a call option on XYZ stock. (A call option gives you the right to buy 100 shares.) The sale on March 31 is a wash sale.

It doesn’t matter whether the call option is in the money. This is an automatic rule. If you buy a call option in this period, you’ll have a wash sale. And that’s true even if you never exercise the option and acquire the stock.

Selling Put Options

You can also turn a sale of stock into a wash sale by selling put options. This rule is not automatic. It applies only if the put option is deep in the money — and there’s no precise standard as to when a put option is deep enough in the money for the rule to apply. The rule applies if it appears, at the time you sell the put option, that there is no substantial likelihood it will expire unexercised. In this circumstance, selling the put option can be roughly equivalent to buying the stock.

Example: On March 31 you sell 100 shares of XYZ at a loss. On April 10 you sell a put option giving the holder the right to sell to you 100 shares of XYZ at a price substantially higher than the current market price of the stock. The sale on March 31 is a wash sale.

As seller of a put option that’s deep in the money, you participate in the upward and downward movement of the stock price, unless the price moves higher than the option price. If the option price is high enough, the chances of that happening are small, and you’ve simply found a different way to continue your investment in the stock.

Losses on Options

Congress amended the wash sale rule in 1988 so that it applies directly to contracts or options to buy or sell stock or securities. That means you can have a wash sale when you close an option position at a loss, if you establish a replacement position within the wash sale period. The Treasury has yet to issue regulations under this rule, and a host of questions remain unanswered. Foremost among these is the question of when one option is substantially identical to another option.

Until the Treasury decides to issue regulations or other guidance, neither I nor anyone else can say exactly how the wash sale rule applies to losses on options. But there’s a pretty good rule of thumb that should tell you when you’re safe and when you’re on thin ice. If the positions you acquired within the wash sale period permit you to participate in the same up and down market swings as the position that produced the loss, there’s a chance the IRS will say you have a wash sale. If that’s not the case, you should be safe.

Suppose you’ve sold a call option at a loss. Buying another call option on the same stock within the wash sale period may be viewed as a wash sale even if the new call option has a different expiration or a different strike price. The IRS might assert that you have a wash sale if you buy XYZ stock, especially if the call was in the money when you sold it. Similarly, you could also have a wash sale if you write a deep-in-the-money put option during the wash sale period.

By contrast, you shouldn’t have a wash sale if you sell a call option at a loss and also write a put option that’s at the money or out of the money. The long call option and the short put option are both bullish positions, but the short put option doesn’t let you participate in the upside.

These remarks are simply my interpretation, and won’t necessarily reflect the interpretation of the IRS or the Treasury. What’s more, other tax pros may have a different take on this question. Unfortunately, there’s no sign that official guidance on these issues will be forthcoming in the near future.

Statement: The derivation of this post is from www.fairmark.com

You don’t have a wash sale unless the shares you bought “replace” the shares you sold.

In general, the wash sale rule prevents you from reporting a loss on the sale of stock if you acquired substantially identical stock on the same day as the sale, or within 30 days before or after that day. But the wash sale rule doesn’t apply if the stock you bought wasn’t replacement stock.

This rule is best understood through a series of examples. In all of these examples, assume that there are no purchases or sales of stock other than those described.

1: Selling All

On June 1 you buy 200 shares of XYZ for $10,000. On June 12 you sell all 200 shares for $8,000 (a loss of $2,000).

Most people wouldn’t even think about applying the wash sale rule here. You know instinctively it shouldn’t apply, even though there’s a purchase of identical stock less than 31 days before the sale. Your instincts are correct: the wash sale rule doesn’t apply because the stock you bought isn’t replacement stock for the stock you sold. That’s true because you sold the same stock you bought.

2: Selling Half

On June 1 you buy 200 shares of XYZ for $10,000. On June 12 you sell 100 shares for $4,000 (a loss of $1,000). You continue to hold the other 100 shares.

The answer here is a little less obvious. After the sale, you hold shares identical to the shares you sold, and you bought those shares less than 31 days before the sale. But you probably still feel that the wash sale rule shouldn’t apply here. And the IRS agrees, in the situation where you bought the 200 shares in a single lot. Furthermore, although the IRS doesn’t say this, the result shouldn’t change if you gave a single buy order for 200 and your broker happened to execute it by buying two lots of 100 shares each. It’s clear the shares you have left after the sale weren’t bought to replace the shares you sold.

3: Separate Purchases

You buy 100 shares of XYZ in the morning, and decide to buy another 100 shares in the afternoon of the same day. Within 30 days, you sell the morning shares at a loss.

For all we know, the price of this stock dropped between morning and afternoon, and your afternoon purchase is for the purpose of claiming a loss while maintaining your investment. In other words, you may have been trying to get the result the wash sale rule is designed to prevent. So the IRS will probably contend that the wash sale rule applies in this situation.

The result should be different, though, if you gave a single buy order for 200 and your broker happened to execute it by buying two lots of 100 shares each. In this case it’s clear the shares you have left after the sale weren’t bought to replace the shares you sold.

4: Old Shares

You have held 100 shares of XYZ for more than 30 days. You buy an additional 100 shares for $5,000. Less than 31 days later, you sell these shares (the new ones) for $4,000 (a $1,000 loss). You continue to hold the old shares.

There are no rulings that mention this situation. But the requirement for replacement stock should prevent the wash sale rule from applying here. The older shares shouldn’t be considered replacement shares for the newer ones.

Note that you have to use specific identification to sell the newer shares. Unless you follow this procedure, the tax law assumes you sold the older shares. If you have a loss on those shares, the wash sale rule applies.

5: Not So Old Shares

Same as the previous example, except the “old” shares aren’t as old. You bought the old shares on June 1, the new shares on June 10, and sold the new shares at a loss on June 20.

Once again, you had to use specific identification to sell the new shares. The question is, do you have a wash sale here because of the fact that you bought the old shares less than 31 days before you sold the new ones?

As a matter of logic, it’s clear that the answer should be no. The old shares can’t possibly be replacement shares for the newer ones. You bought them before you bought the shares you sold, so they should be ignored in applying the wash sale rule.

Unfortunately, in a ruling dealing with an unrelated point, the IRS gave an example like the one above, and said the wash sale rule applied. The ruling was designed to establish that shares bought on margin are subject to the wash sale rule. It’s possible that the person who drafted the ruling simply didn’t think about the fact that the shares in that example weren’t replacement shares.

My feeling is that the wash sale rule should never apply if the “replacement” shares were bought at the same time as, or earlier than, the shares that were sold. There isn’t any opportunity for abusive tax planning in this situation. But the issue is in doubt because the IRS has issued a ruling that, in my opinion, is erroneous.