Traders of option contracts sometimes overlook adjustments that need to be made for accurate tax reporting. TradeLog can make these adjustments easier with a few important functions. Here are three tips for option traders:
#1. Check for expired options.
Most brokers do not report option expiration in the trade history imported by TradeLog. As a result, some option trades may still show as open when you verify your year-end open positions. TradeLog’s Expire Options function will quickly and easily expire any options that are still showing as open past their expiration date. Run this function at year end, or if you use TradeLog regularly you can Expire Options as often as required. Click here for more instructions.
# 2. Check for exercised options.
Exercised options should be adjusted based on IRS rules. Basically the option is not reported to the IRS, but the assigned stock is adjusted for the option premium. Because brokers do not report exercised options consistently TradeLog is not able to make these adjustments automatically on import. However, the Exercise/Assign function in TradeLog makes the task easier!
The Exercise/Assign function will first identify any options and corresponding stock trades that appear to be related. You will then be able to confirm each option that was exercised. TradeLog will make the appropriate adjustments to the assigned stock position for proper tax reporting. Click here to learn how to use the Exercise/Assign function.
#3 Check 1099-B if broker adjusts sales for options premiums.
If you do have exercised options you need to know how your broker reports sales on the 1099-B as this can affect the reconciliation of sales. Typically, brokers indicate on the 1099-B if the sales are adjusted for option premiums. The image on the right is an example from an E*TRADE 1099-B, notice that box 2 indicates "less commissions and option premiums." That means the sales have been adjusted for option premiums.
If your broker does adjust sales for option premiums on the 1099-B, then check the corresponding box on the 1099-B information dialog box in TradeLog as shown in the image on the below.
If your broker does NOT report sales adjusted for option premiums, then make sure the check box is NOT checked. Click here for details instructions on entering 1099-B information in TradeLog.
TradeLog software makes tax time easier for traders in option contracts. To learn more about tax topics affecting option traders go to our online Trader Tax Topics.
Please note: This information is provided only as a general guide and is not to be taken as official IRS instructions. Cogenta Computing, Inc. does not make investment recommendations nor provide financial, tax or legal advice. You are solely responsible for your investment and tax reporting decisions. Please consult your tax advisor or accountant to discuss your specific situation.