Day Trader and calculating current trades tax liability

[vrobert]

Hello - i am a pattern day trader. I run a year-to-date summaries in my trading account that show realized/unrealized losses and gains. From a tax perspective, where on my statement should I be looking to understand what I have as taxable income as of now (all realized losses and gains)?

Should I be looking at "Mark-to-Market P/L statement and taxes"?

If Turbo Tax had something I could plug in my statement and tell me what I owed in taxes same day and time that would be invaluable.

Looking for any help on what others use to easily manage this. My brokerage doesn't have really great tools..(IBKR)

[Mike9241]

"Should I be looking at "Mark-to-Market P/L statement and taxes".  have you made a valid Mark-to Market election with the IRS under IRC 475(f) if not then you need the P/L for only realized gain/losses. FYI MTM accounting includes unrealized gains/losses because at the end of the period you include unrealized gains/losses with a valid 475(f) election. 

it seems you haven't made it otherwise I'm certain sure you would know.   to make the election it must be file by 4/15/xxxx with either your income tax return or extension for the year preceding the year the election is to take effect. if you haven't, the earliest you could is 4/15/2024 with your 2023 income tax return or valid extension and the election would be effective for your 2024 income tax return. 

there are pros and cons to this election and there are certain criteria you must meet so I would suggest you meet with a tax pro to go over your situation.  electing when you're not qualified could have disastrous tax consequences.

[vrobert]

I have not made Market election with the IRS under IRC 475(f).

[vrobert]

More questions...is this why traders "tax harvest" at the end of the year and realize more losses to avoid paying taxes on additional gains?

Today, my current statement shows as below - why are some totals negative? Not completely understanding...

REALIZED:

S/T Profit: $77,333.97

S/T Loss:  $45,185

L/T Loss:  $-39,936

Total Realized:       $82,582

UNREALIZED:

S/T Profit: $5,054

S/T Loss:  $-64,597

L/T Profit: $30.46

L/T Loss: $-46,054

Total Unrealized:  $-105,666.70

TOTAL ALL ASSEST: -$22,984

So I have a tax liability of $82,582 of short term gains. I can offset these gains if I realized more losses, of which right now I can -$22,984 total. 

[Anonymous_]

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@vrobert wrote:

........i am a pattern day trader.......

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I would urge you to be cautious with respect to the determination of trader status for the purposes of federal income taxation. 

A "pattern day trader" is a FINRA rule:

See https://www.finra.org/investors/investing/investment-products/stocks/day-trading

Trader status for the purposes of the IRS is not precisely similar:

See https://www.irs.gov/taxtopics/tc429

[Mike9241]

then your income for the period is only the realized gains less losses. losses are subject to the wash sale rules. MTM has no applicability in your situation in determining tax liability.

[Anonymous_]

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@vrobert wrote:

So I have a tax liability of $82,582 of short term gains. I can offset these gains if I realized more losses, of which right now I can -$22,984 total. 

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According to your figures, you have $105,666.70 of unrealized losses, but you appear to be combining your realized gains with your unrealized losses.

If you liquidated your positions, per the figures you posted, you could use the $105,666.70 of unrealized losses to completely offset all of your realized gains. You would then be able to use another $3,000 of those losses to offset all other income with the balance being carried over to future tax years.

[VolvoGirl]

Here's more info on carrying over a loss......

If you have a net loss for the year (after you subtract the losses from your gains) you can only deduct up to 3,000 (1,500 MFS) per year. The rest of the loss you have to carry over each year until it is used up. You can't skip a year. If you use Turbo Tax it will automatically carry over the loss for you.

Then in the future if you have a lot of gains you can use up more of the carryover loss.

See IRS Pub 550 https://www.irs.gov/pub/irs-pdf/p550.pdf 

[fanfare]

You are talking about tax loss harvesting,

sell losers so you won't have to pay tax on winners.

day traders can be impeded in this strategy because of the wash sale rule

you may sell at a loss but the loss cannot be deducted because your prior activity makes it is a wash sale.

if you sell and then buy back, trying to trick the IRS, you will definitely have a wash sale.\

You can buy back only after waiting thirty-one days.

@vrobert 

[vrobert]

Ty. 

[vrobert]

Aware of this. But why cautioning?

[Anonymous_]

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@vrobert wrote:

Aware of this. But why cautioning?

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In order to ensure that you qualify for trader status with respect to the IRS. 

Trader status is not synonymous with "pattern daytrader" (different standards for different purposes).

[vrobert]

Brokerages take care of handling this for you.

[Anonymous_]

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@vrobert wrote:

Brokerages take care of handling this for you.

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Handling what, exactly?

Brokerage firms do not handle the issue of whether or not you qualify for trader status with the IRS.

[vrobert]

You get marked as a PTD at the brokerage if those requirements are met. You made it sound like I need to do something per the IRS. Either way, my accountant at TT helped file my taxes last year and I was a PTD.

Regarding realized losses and gains, no matter the case, realized gains and losses always offset each other (long term and short term gains) As an example for my entire trading year, if I made 40k on a stock and sold, then lost 35k on the same stock same year (short term gains) my tax liability is on the 5k.

^^This would be how I determine my tax liability day-by-day on my statement.