Accounting Solutions

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

I recommend keeping your accounting for trading gains and losses separate from expenses. A consumer off-the-shelf accounting program is acceptable for keeping track of costs, non-trading income, home office deductions, and itemized deductions. However, you may need a specialized software program or professional service for trade accounting for securities. 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. Forex contract traders can depend on the broker’s annual tax reports and should use summary reporting. Spot forex is not a covered security, so Form 1099-B isn’t issued. 

U.S.-based cryptocurrency exchanges issue Form 1099-K, 1099-Misc., or 1099-B to taxpayers reaching a certain threshold of transactions, and most provide online tax reports. Consider a cryptocurrency trade accounting solution. 

SECURITIES ACCOUNTING IS CHALLENGING

Taxpayers should report proceeds, cost basis, wash-sale loss, other adjustments, holding period, and capital gain/loss for each trade on Form 8949. It’s inappropriate to use summary reporting. Details for Form 8949 are on broker-issued Form 1099-Bs. According to Form 8949 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 Form 8949. After all, the IRS gets a copy of the 1099-B with all the details. 

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

For more information, see Green’sTraderTax Guide, Chapter 4, Accounting for Trading Gains & Losses.