The first task to properly file your taxes from trading, and one that I wish the brokers would help with (but to date NONE have accepted the challenge) is to gather your open positions from the previous tax year.
You might think that this is quite simple. Just go to your broker's web site, look in the account records area, and there should be a nice concise report with everything you need. - WRONG!
Search as you may, you will find no such report. What is provided, usually at the very beginning of your December monthly statement, is a list of open positions at month end which also happens to be year end.
Wait a minute, didn't you just say that there is no such list of open positions?
Yes, I did. What I meant is that this list of open positions may not be completely accurate. There are two major flaws in most broker provided monthly statement open positions lists:
So where do you get your true cost basis for these shares?
You need to back-track through your monthly statements to find when you purchased them and how much you paid for them. This is quite easy if you bought them in December because they are reported on this same statement.
But what if you bought them several months ago or several years ago? There is no other way around having to back-track one month at a time until you find the original purchase date for these shares.
Now I suppose you could create a data file for the previous year and import the previous years trades to see what was left open at year end. But what of you had open positions from the year prior to that year? Additionally, many brokers do not provide trade history for more than one or two years back. Some only provide the last 90 days, which for tax purposes is absolutely useless!
OK, so let's assume you were able to find your original purchase date and price for all of your open positions. Are you sure that this list of open positions is correct? What are you talking about? Sure it is correct. Why would it not be correct?
Because many brokers (most but not all) show another list further down in their monthly statements that modifies what was "really" open at year end. This other list is entitled "Unsettled Trades." This actually is a third major flaw in the open position list:
Trades executed in late December, usually on the last 2 or 3 days of the month, do not settle until next year, so many brokers list these trades separately. But the IRS, as well as the rest of your trade records, use trade date, not settlement date!
So these "unsettled" trades need to be considered in gathering a more correct list of what was open at year end.
An unsettled sale can close some of the open long shares listed in the open positions portion of the statement, and an unsettled purchase could close an open short sale, or possibly open new positions that were not listed in the open position list at the beginning of the monthly statement. It becomes a plus minus game that MUST be done manually.
Once you have a correct list of open positions, then you are back to tracking down when you bought them and how much you paid for them. It makes you wish you had closed everything out at year end, doesn't it?
After you have done all of this hand work, you are ready to enter this into your automated trader tax software program or spreadsheet. Yes, these need to be manually entered. They cannot be imported somehow because there exists no file or report to be imported.
What if you have 100 open positions at year end?
Now you know why many accountants charge thousands of dollars to prepare a proper schedule d!
You ONLY need to enter your open positions the very first year that you use TradeLog.
Every year after, TradeLog will automatically copy your open positions to your
next tax year data file.
PS: If you have your open positions cost basis in some sort of spreadsheet or text file, then these could be imported saving some additional time.
Whew! Am I glad that one is over with! So let's get on with the easy stuff ...
Gathering trade history from your online broker