Are Wash Sales Affecting Your Bottom Line?

Published: December 18, 2017
Tagged: Wash Sales, Trader Taxes, 2017 Taxes

As the tax year comes to an end, it's important for to understand wash sale effects from your trading and any negative consequences on your taxable gains. Using TradeLog Software, you can understand how wash sales affect your bottom line and then utilize reporting tools to help you potentially control and avoid harmful results.

How wash sales can hurt:

Wash sales may result in losses deferred to the next tax year. Reduced losses in turn may increase taxable gains. Some traders even have a taxable gain when they actually had a net loss for the year. Nobody wants to pay taxes on money they didn't make, so this can be harmful.

Wash sales triggered by IRA trades are always harmful. The IRS has special rules for IRA trades which trigger a wash sale in a taxable account. Rather than deferring the loss to a future date, the IRS says the loss is permanently disallowed. If you trade the same securities in your taxable and non-taxable accounts, then it's important to carefully monitor potential wash sales all year long.

What to do right now:

Using TradeLog Software you can import your trade activity for all accounts year-to-date. Make any needed adjustments for corporate actions, exercised options, etc. Then, run your tax reporting across all accounts to reveal your taxable gain/loss and notice the wash sale amounts. The Wash Sales Detail Report also provides a breakdown of wash sales that occurred. If wash sales are resulting in higher taxable gains, take action if possible.

TradeLog's Potential Wash Sales Report can be used to identify possible action to avoid harmful wash sale effects. This may include closing positions which have large amounts of wash sale deferrals attached to them. You may also need to avoid trading certain securities if there was a large loss in the past 30 days.

Want to learn more about controlling your wash sales?

We've posted four videos on our YouTube channel explaining wash sales, how they affect active traders, and how to control the effects. Check them out below and learn more in our resources section.

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.