Wash sale issue for profitable trader

[Mike9241]

the only way to get the benefit of the deferred wash sale loss is to close the position containing the loss and not establish a new position of substantially identical securities within the wash sale period.  short sales can be a little trickier so refer to that thread that was previously provided.  

[Rick19744]

If you are a trader:

• You need to understand the rules, and think ahead.
• Making a MTM election will avoid the wash sale rules, but you need to think of your trader business and whether this is the right election for you.  The timing of this election is key, and so is making sure you are not stuck with significant capital losses when you make this election.  Once again, thinking ahead is key.
• Traders need to establish a "no trade list" if they want to avoid the agonies of the wash sale rules.  
• Traders need to acquire software that will handle this process, such as Trade Log.  This is just one example as there are other programs out there.
• tradelog.com

[MuMiX]

"I feel your pain.   So looking at TD Ameritrade how do you know the wash sale damage around Dec if you keep the trade open or closed?  I want to  see what is being wash sale amount is disallowed?  This is the figure that makes turbo tax go up."

You just go to the Tax Center on the TDA website.  There's buttons there to see the summary of account with and without wash sale + all individual transactions (either Excel download or directly on website).

[Sid13]

I am experiencing similar pain. I feel I should never have started to trade, and I promise never again to trade in my life. I have liquidated my positions. I was not aware of this rule when I started trading. But my losses from washover sales were two times my profits, and now only my profits are being taxed, even if I have made substantial net losses while trading. How is this fair? I am facing a huge tax bill and I feel it was my ignorance. And the thing is even if there are losses shown next year (not from washover sales), I feel this will 

Was your tax situation critical? Or did you end up paying such a huge tax bill? 

I will pay the enormous tax bill this time and promise never to trade or invest money in stocks again. 

[fanfare]

If you close all your positions, you will recover the deduction for all those disallowed losses.

Unfortunately you can only write them off at the rate of $3,000 per year if you never have another profit

because you never invest again.

@Sid13 

[Sid13]

Thank you so much for the reply. I feel IRS should show one-time mercy or new traders will come in bigger trap. A good faith honest apology with promise never to trade again. For example if you have 100K in profits in good trades and 200K in losses in bad trades , than bad trades are wash sales so you end up paying high taxes which will never be replaced. 

As such trading is a risk, on top some brokers I fear could be attaching any other stock bought in same sector as near similar and counting as wash sale. Like if you replace one consumer defensive stock with another one. Trading is near impossible with such restrictions. 

I do know why this is not such a big issue and why there is not more awareness on it. Not everybody knows all tax laws and I feel it is too much a price to pay for common everyday traders. 

[fanfare]

There is not much awareness because it is pretty hard to get into this situation and it doesn't show up very often on this forum.

Somehow, I doubt IRS will  forgo the tax on your income when you explain you will never do it again.

[Sid13]

I know IRS will never forgive but this is just a hypothetical scenario. Also, nobody told me you should liquidate all holdings in October every year and not do any transactions till next year. I also think some brokerage companies are mean and will count any buying ( even remotely related) in wash sale. So it’s impossible to trade anyway like this. I have other job and trader was just for some hours every week. There are many new investors doing same mistake. Many will painfully realize this every year as many are ignorant. 
For good or bad, trading has lots of restrictions and is my worst ever decision. I am already paying for this huge tax bill and I know there is no option. This door is closed forever.