What Stock Option Sales Are Considered Non-Reportable?
Tax reporting for stock options can be complex -- rules vary depending on the nature of the trade, your role in the trade and the end result. One rule is certain, however: all profit and loss from options trading is reportable. All that changes is when and how you report your options sale.
Other People Are Reading
-
Section 1256 Contracts
-
Section 1256 contracts are a type of futures trading that operates similarly to standard equity puts and calls but are taxed differently. Section 1256 contracts include non-equity options, dealer equity options, other futures contracts and foreign currency contracts. These contracts are considered sold at the end of the calendar year, whether or not they are complete. Capital gain or loss is recognized on that year's taxes based on the year-end selling price. This recognized gain or loss offsets the actual gain or loss when you sell the contract at a later date. Taxes for the sale year recognize only the difference between the first-year recognized gain and the actual gain. If the first-year reported gain or loss is equivalent to the actual gain or loss, the actual sale would not be reported for tax purposes.
Options Writers -- Single-Sided Puts and Calls
-
If you write an option, you are not required to report the premium you receive for selling it until the option holder exercises the put or call, or until the option expires. In either case, you will recognize a short-term gain on the date of execution or expiration, regardless of the amount of time the option was open.
-
Put and Call Holders
-
If you hold a put or call option that is later sold, you must recognize any associated gain or loss in that tax year. In some cases, you may delay recognition of a loss if you hold an equivalent offsetting position, a practice known as straddling. In it's simplest form, a straddle holds both put and call options on the same stock position with the same strike price, although there are a number of other ways to construct a straddle. If your straddle meets IRS guidelines, you may delay recognition of loss due to the sale or expiration of a put or call option by one year. See IRS Publication 550 for complete details.
Warning
-
The rules for tax reporting of options and other futures trades are extremely complex -- there is a different set of rules for nearly every type of option and every trade scenario. It is important to review the tax rules with an accountant or tax preparer to ensure that you do not misreport your options trading income. Misreporting could result in costly IRS penalties and an unnecessary reduction in income.
-
