When you’re in the business of buying and selling ordinary stock investments for a living, one would think that doing your taxes at the end of the year is a pretty straightforward process, right? Wrong! You should absolutely consider seeking the help of a professional tax service that specializes in working with stock traders to ensure your taxes get done properly.
The process is a lot different (and a lot more confusing) when it comes to stock options.
If you trade options, you’ll find that it’s more difficult to deal with your taxes at the end of every year since the IRS has created a long list of special rules related to options trading. It’s best to leave tax preparation to the pros when it comes to the taxation of trading since it’s easy to make mistakes when filing taxes.
One of the hardest parts about trying to tackle the taxation of options trading is calculating the capital gains associated with stock options.
In addition to assessing the gains and losses tied to selling off stock options, the IRS rules also call for traders to differentiate between short-term and long-term capital gains and losses. And this depends on things like how soon a holder decides to sell an option prior to its expected expiration date.
This is only the tip of the iceberg as far as the confusion that sometimes surrounds the taxation of options trading is concerned. There are also IRS stipulations attached to option expirations, option exercises, stock assignments, and more. If you don’t understand what you’re doing, you could easily screw up your taxes and file them incorrectly, which can lead to all sorts of issues down the line.