The Internal Revenue Service wants to know if your option trading resulted in a capital gain or loss. When you trade put options, you sell the option first with the goal of making a profit when you buy it back at a lower price. With call options, you buy the option first and make a profit when you sell it at more than the buy price. You report your completed put and call option transactions to determine if you owe capital gains tax.
If you report a loss, you can use that amount to offset any capital gains you might have. Because option brokerage firms do not send trade confirmations, you will need the information included on your monthly brokerage statements. Start by making two lists of your trades in chronological order. Your option trades are either short-term or long-term transactions.
Short-term trades are opened and closed in 12 months or less. Long-term trades are held longer than one year. Comparing the dates when you first opened the trade to when you closed it will determine if it is a short-term or long-term trade.
Enter the acquisition cost in column E and the commission amount in column G. Subtract the amount in column E from columns D and G and put that amount in column H. Add up the amounts in column H to get your total net short-term and long-term trade proceeds.
The net proceeds from trading put and call options calculated on Form is transferred to Schedule D, Capital Gains and Losses. Transfer the short-term net gain or loss to line 1, 2 or 3 and carry the total down to line 7. Transfer the long term net gain or loss to line 8b, 9 or 10 and carry that total down to line The final step is to add up the amounts on lines 7 and 15 and show the total on line The final amount is transferred to your personal tax return.
If you live in a state that has capital gains tax, you must file a state return to report your option put and call trades. You must disclose the net transaction proceeds and pay state tax on any resulting liability.
If you itemize your federal deductions, you can deduct the amount of state capital gains tax you paid on Schedule A to help lower your federal tax bill. She received a bachelor's degree in business administration from the University of South Florida. At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system.
These returns cover a period from and were examined and attested by Baker Tilly, an independent accounting firm. Visit performance for information about the performance numbers displayed above. Skip to main content. Organize Your Trades Because option brokerage firms do not send trade confirmations, you will need the information included on your monthly brokerage statements.
State Tax Reporting If you live in a state that has capital gains tax, you must file a state return to report your option put and call trades. References 4 Scottrade Knowledge Center: Capital Gains and Losses Tax Foundation: About the Author Based in St. Zacks Research is Reported On:More...