Hi -
I decided this week off work to play around with day trading using a margin account. I traded mostly the same stock symbol, and made dozens, maybe over 100 separate trades in the same day. I made sure the day ended and the market closed each day with no open positions on my 'day trading' symbols (I have some long term symbols i've been holding in the account).
So as an example, I bought 750 shares of MSFT for $305.07. A few seconds later I sold it for $305.15. Profit of $60. Every 4 or 5 trades I might lose (I buy at $305.15, and set a sell order for $305.20, but instead it drops to $305.10, and i sell then to cut my losses).
I've probably done $60,000,000 in trades this week, but only made a net profit of ~$1500. I've gained about $10,000 and lost around $8500 this week. So many trades that I have to register as a "Large Volume Trader" with the SEC. Millions of $ trading (out of my margin account), but only a few hundred dollars a day win, if that.
Again, even though i'm in and out of the same symbol 100+ times a day, i never hold a position overnight.
So just to summarize:
- I do large volume of trades and large trade $, but very small wins. about 80% of my trades are wins.
- I never hold any of my 'day trade' positions overnight - ever. I'm in and out within 10 or 20 seconds
- There's only one symbol that I day trade with. I have no long term holdings in this stock
- The other stocks I have on my portfolio are all long-term holds (multiple months)
- This is not my full time job; it's something i do on the side.
I'm familiar with the concept of $3000 maximum capital losses for the year (in fact i'm in that process now - had $7k in losses in 2021, so taking $3k 2021, $3k 2022, and $1k 2023).
Just want to figure out if i'm going to get taxed on my true net gains (i.e - end of the year i have $2billion in trades, $500,000 in gains, and $475,000 in losses, my 'net gain' would be $25,000) - or is it going to be something else?
Thanks so much!
Possibly. The fact that you are creating wash sales daily, indicates one option for you. If you want to be a Daytrader, I recommend you make the mark to market election on your tax return this year. This allows you to use sch C to claim all sales, including the wash, and expenses, with no self-employment tax. Otherwise, you are just an investor and limited to sch D. See:
Wash sale - (Does not apply to Mark to Market election) Daytrader or investor:
Under the wash-sale rule, you cannot deduct a loss if you have both a gain and a loss in the same security within a 61-day period. (That’s calendar days, not trading days, so weekends and holidays count.) However, you can add the disallowed loss to the basis of your security.
Thanks. I read that post, but I have a full time W2 job - this day trading is something I do on the side.
Honestly, I wish i hadn't even dabbled in it. It's just been a few days (this week) and i've incurred so much already, although I've walked away with $500.
If i stop immediately, and never day trade again, will that do anything ? Or will the last 5 days of 'wash sales' haunt me and i'll have a $140k extra income on my 2022 taxes that i do next year?
The bottom line is you traded heavily over a period of time. You qualify as a day trader for the purposes of including a Schedule C on your tax return only. You do not qualify to abandon your investor status. You must report your gains and losses on Schedule D. Your wash sale rules apply.