Entering Trades on Schedule D

Entering your trades on the IRS schedule d presents quite a challenge for the active trader, as no matched list of your trades is provided by your brokerage as mentioned in the Capital Gains tax topic.  Your broker provided 1099 which gets mailed to you and the IRS generally lists your sales, but in many cases does not list your purchases, and if it does, they are listed separate from your sales. 

If you take a close look at the columns on the Schedule D, you will notice that each line item consists of both a purchase and a sale as part of a matched transaction.  It is up to you to do the matching.  For every sell transaction made in the current tax year, there must be a corresponding purchase transaction. 

First In, First Out (FIFO):

If you do not specify a method, the IRS will assume you used the First In, First Out (FIFO) method.  When using the FIFO method, the first shares purchased are considered the first shares redeemed. The oldest shares still available are considered the first ones sold. 

It takes quite a bit of work to go back and forth with each sale to find the correct purchase shares.  Add to that the fact that you probably did not buy and sell an equal number of shares.  Now your trade matching problem gets really complicated!

Next: understand trade matching on a Schedule D.