Accounting Solutions

Securities traders face accounting challenges over cost-basis reporting including wash sale loss adjustments.

When it comes to trading, it’s wise to do separate accounting for gains and losses vs. expenses. A consumer off-the-shelf accounting program is excellent for keeping track of expenses, non-trading income, home office deductions, and itemized deductions. But when it comes to trade accounting for securities, one may need a specialized software program or solution.

Futures gain/loss accounting may not be necessary, as traders generally can rely on the one-page 1099-B with summary reporting, using MTM reporting. For spot forex accounting, taxpayers can count on the broker’s annual tax reports and should use summary reporting. Spot forex is not a “covered security,” so there are no Form 1099-Bs.

U.S.-based cryptocurrency exchanges issue a Form 1099-K to taxpayers reaching a certain threshold of transactions, and most provide online tax reports. Consider a cryptocurrency trade accounting solution. (See Chapter 18 for my review of two cryptocurrency accounting programs and all the details on accounting for cryptocurrencies.)

Securities accounting is challenging

Securities brokers made advances in tax-compliance reporting due to Congressional legislation, and implementation of IRS cost-basis reporting regulations phased in between 2011 and 2017.

Taxpayers report proceeds, cost basis, wash-sale loss, and other adjustments, holding period, and capital gain/loss on Form 8949. According to the form’s instructions, taxpayers without wash sales and other adjustments to cost-basis may enter totals from broker 1099-Bs directly on Schedule D and skip filing a Form 8949. After all, the IRS gets a copy of the 1099-B with all the details.

But many taxpayers believe that they don’t have wash sales, when in fact they often have many to report to comply with IRS rules for taxpayers, which vary from rules for brokers.

See Wash Sale Losses and Form 8949 & 1099-B Issues.

If a securities trader has multiple brokerage accounts, including IRAs, and or trades substantially identical positions (stocks vs. options), then the trader should consider an IRS-compliant securities trade accounting program or service. We offer a trade accounting service.

Excerpt from Green’s 2019 Trader Tax Guide Chapter 4, Accounting for Trading Gains & Losses.