Accounting Solutions

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

When it comes to a trading activity, it’s wise to do separate accounting for gains and losses vs. expenses. A consumer off-the-shelf accounting program is fine 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 professional service. 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 forex contracts, taxpayers can rely 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.

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 be in compliance with IRS rules for taxpayers, which vary from rules for brokers.

See Forms 8949 and 1099-B issues and Wash Sale Losses.

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

 

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