Can the IRS tax you on a Stock that was purchase last year but not yet sold?

Question

I did some day trading last year and when I downloaded my Gains Keeper, its saying I have a captial gains of 35K. I know I didn't make 35K last year in tading stock!!! So I'm thinking they are trying to tax me on the stock that I bought and am holding on to. I'm not sure. Any information would be helpful. Thanks.

Answer 1

I wonder if your gains keeper was showing you "unrealized gain" at year end rather than "realized gain". You should only have to put down on your tax return shares that you sold during the year. But from I recall about "day trading" you buy and sell stocks quite often, so it is quite possible that that 35K gain is real. Print out the report showing the gains of 35K, and see if it's actual gain on stocks that you sold during the year or if it's showing the increase in value during the year of stocks that you still owned at year end. You are taxed only on "realized gains" not "unrealized gains". Hopefully it's unrealized gain, because if you did "day trading" last year your gains of 35K would more than likely be short term, which is taxed at your tax bracket rather than long-term capital gains, which are taxed at lower tax rates.

Answer 2

the answer depends on your tax status.

professional traders, who are in the business of buying and selling shares, are taxed as if they sold all shares, options, futures, forwards, etc. at the last price of the year [thus realizing their gains]. Software programs for them 'know' this and so calculate the these gains and report them as taxable.

To temporarily avoid this tax, since you admit you were day trading, you'd likely have to show that the transactions which resulted in the 'gains' on positions opened but not yet closed were not part of your day trading activity.

This is a reasonable assumption if you bought them in a separate account that did not day trade. It might be an allowable conclusion if your dated, daily notes [and IRS isn't likely to accept electronic ones because the dates can be fudged easily] from when you bought them clearly show that the shares were bought as long term investments.

In order to do this, you'll have to go through the details of all positions with 'unrealized' gains and losses at year end to determine which ones were not day trading.

Btw, I'd do this with the assumption that I will be audited. Sloppy paperwork gets its just reward -- losing.


GL

Answer 3

I am assuming your account only has stocks, and not options or futures.

If Gainskeeper is showing gains on stock that you have not sold, you have elected the "Mark to Market" method of reporting gains. Once you do this, you can only get it revoked with IRS approval. All gains are ordinary gains, and all equities are treated as sold and rebought on the last day of the year.

So the answer to your question is yes, you can be taxed on gains on stocks that are not sold as of the end of the year, by electing the Mark to Market method of reporting gains.

Read about the "Mark to Market" election in IRS Pub 550, Chapter 4.

http://www.irs.gov/pub/irs-pdf/p550.pdf

You may elect the Mark to Market method only if you are a professional trader, whether you call yourself a day trader or not. If you have separate investment accounts that you are not trading, you do not have to treat those gains by the Mark to Market method.

So read up on this and change your election in Gainskeeper if that is to your advantage. You may want to separate your investment and trading accounts to avoid the problem you describe.

Answer 4

If you sold a stock and didn't properly report the transaction on Schedule D, the only information that the IRS has is the net sales price. They will assume that that is all gain if you don't properly report it. File an amended return with Schedule D attached listing your trades and the net income or loss.

Answer 5

those which you nonetheless carry and have not offered does not be pronounced on the time table D of the 1040 earnings tax return. those which you have offered throughout the time of the tax three hundred and sixty 5 days do could be pronounced on the time table D of the 1040 earnings tax return. For question on the subject of the data it incredibly is enclosed on your 1099B you would be waiting to discover a telephone huge form indexed on that 1099B which you would be able to call and doubtless get the main suitable information which you incredibly want and want on the subject of the data that they have got pronounced to you and to the IRS in this actual 1099B. i could wish which you do discover the above enclosed information sensible to you on your concern and sturdy success to you with this remember.

Answer 6

No If you still have the stock and can prove it.