Tax discussion, strategies and questions

[Criscmt]

Tax implications of gains on one leg of straddle?

I bought some calls, not opened as straddles but individual legs at separate dates.
Ignore the contract price numbers, picked some hypothetical numbers.
I believe they turn into straddles effectively?

Purchase/Sold Date | Contract | Buy to Open / Sell to Open | Contract Price
Nov-16-2020 | TSLA Jan-2021 C500 | Buy to Open | 40
Nov-20-2020 | TSLA Jan-2021 C600 | Buy to Open | 50
Nov-25-2020 | TSLA Jan-2021 C510 | Sell to Open | 80
Nov-30-2020 | TSLA Jan-2021 C610 | Sell to Open | 90

In Jan-2021 before expiration of C510 and C610, I buy to close them.
Let's say at prices $60 and $70. AND, I also exercise both the calls C500 and C600.

If we assume that I don't sell those TSLA shares in 2021, would the buy to close of calls lead to tax event in Jan-2021, for gains $80-$60 ($20 * 100) and $90-$70 ($20 * 100)?

I believe if it's losses when we buy back the short call legs, we can't claim a loss as the corresponding long leg is open.
But with profits I won't be surprised if it's different (that gains must be counted towards taxes, unlike losses).

Does anyone have any idea, thoughts or pointers that would be helpful in finding the right answer for this?
@adiggs

 

[adiggs]

Tax implications of gains on one leg of straddle?

I bought some calls, not opened as straddles but individual legs at separate dates.
Ignore the contract price numbers, picked some hypothetical numbers.
I believe they turn into straddles effectively?

Purchase/Sold Date | Contract | Buy to Open / Sell to Open | Contract Price
Nov-16-2020 | TSLA Jan-2021 C500 | Buy to Open | 40
Nov-20-2020 | TSLA Jan-2021 C600 | Buy to Open | 50
Nov-25-2020 | TSLA Jan-2021 C510 | Sell to Open | 80
Nov-30-2020 | TSLA Jan-2021 C610 | Sell to Open | 90

In Jan-2021 before expiration of C510 and C610, I buy to close them.
Let's say at prices $60 and $70. AND, I also exercise both the calls C500 and C600.

If we assume that I don't sell those TSLA shares in 2021, would the buy to close of calls lead to tax event in Jan-2021, for gains $80-$60 ($20 * 100) and $90-$70 ($20 * 100)?

I believe if it's losses when we buy back the short call legs, we can't claim a loss as the corresponding long leg is open.
But with profits I won't be surprised if it's different (that gains must be counted towards taxes, unlike losses).

Does anyone have any idea, thoughts or pointers that would be helpful in finding the right answer for this?
@adiggs

Way, way beyond anything I know. However I know that I've read info about stuff like this on the irs.gov website (I was looking for covered call tax considerations, and I got a lot more than I bargained).

I expect an internet search using your title will get you at least something.


And somewhere in here, were I in a similar situation, I'd be looking for a local tax accountant/attorney/expert that has knowledge in this area, and get to know them really well. Maybe even establish a long term commercial relationship with them

 

[Criscmt]

Way, way beyond anything I know. However I know that I've read info about stuff like this on the irs.gov website (I was looking for covered call tax considerations, and I got a lot more than I bargained).

I expect an internet search using your title will get you at least something.


And somewhere in here, were I in a similar situation, I'd be looking for a local tax accountant/attorney/expert that has knowledge in this area, and get to know them really well. Maybe even establish a long term commercial relationship with them

I reached out to a few experts (tax accountants) with the intention of establishing commercial relationship.
Sadly it's turning out hard to find one who has clear answer to this question

 

[davidf31]

another wash sale question...

scenario:

Trade A: buy and sell TSLA early dec for a 10k gain.
Trade B: buy and sell TSLA late dec for a 5k loss.
Trade C: i buy TSLA in early jan 2021

Does the 5k loss get applied to the gain from Trade A which results in 5k gain for 2020 taxes? Or does the 5k loss get added to the cost basis of my Jan 2021 trade and I pay taxes on 10k for 2020?

Much appreciated.

 

[mongo]

another wash sale question...

scenario:

Trade A: buy and sell TSLA early dec for a 10k gain.
Trade B: buy and sell TSLA late dec for a 5k loss.
Trade C: i buy TSLA in early jan 2021

Does the 5k loss get applied to the gain from Trade A which results in 5k gain for 2020 taxes? Or does the 5k loss get added to the cost basis of my Jan 2021 trade and I pay taxes on 10k for 2020?

Much appreciated.

The latter, 10k taxed in 2020, Trade C taxed at net - 5k when you sell.
Preventing the end of year B/C trade from creating a deduction is the reason the wash rule existd.

 

[Navin]

Hi - I just received this note from my brokerage account: Can someone explain to me what this means in layman's terms?

"We are writing to let you know about an important change regarding tax reporting for short options that may affect the account(s) you hold with us.

Beginning this year (tax year 2020), we are implementing a change to remove wash sale reporting on short options. All tax reporting for short options will be completed using the original sale price and subsequent closing transactions, expirations, or resulting assignments without making any adjustments for wash sales.

Around December 19, 2020 this reporting change will be applied retroactively for all transactions in tax year 2020 and may result in changes to your portfolio information (e.g., updated purchase dates and prices to reflect the original trades) and your taxable gains and losses. To understand how this might affect your specific tax situation, we encourage you to consult a tax advisor. "

 

[FlamingPIG]

Long shot question:
would buying a Tesla product consider be under research, therefore can be tax deducted?
Many of us here bought a Tesla to understand the product better therefor have more conviction in TSLA.

 

[bkp_duke]

Long shot question:
would buying a Tesla product consider be under research, therefore can be tax deducted?
Many of us here bought a Tesla to understand the product better therefor have more conviction in TSLA.

My CPA literally laughed, and then said "no".

 

[Driver Dave]

My CPA literally laughed, and then said "no".

This of course makes CPA laugh and say no, and they are correct, but.. logically, it should be ok.

If a company bought a car to analyze it, they would write it off.

Why can’t investors do the same?

Companies are people. Therefore people are companies.

 

[bkp_duke]

This of course makes CPA laugh and say no, and they are correct, but.. logically, it should be ok.

If a company bought a car to analyze it, they would write it off.

Why can’t investors do the same?

Companies are people. Therefore people are companies.

Doesn't work that way. Basically, if you get audited, the IRS makes you PROVE every deduction you take. Not vice versa.

 

[Driver Dave]

Doesn't work that way. Basically, if you get audited, the IRS makes you PROVE every deduction you take. Not vice versa.

So can’t you just prove it by showing the Tesla in your driveway and then the TSLA chart for past year?

(I say this firmly half kidding)

 

[bkp_duke]

So can’t you just prove it by showing the Tesla in your driveway and then the TSLA chart for past year?

(I say this firmly half kidding)

Also, in a word, no. You would have to have a corporate history of buying cars and then publishing reviews on them, etc. And even then only a small portion would be deductable, because the assumption by them would be that keeping it long term would entail considerable personal usage.

Right now, even business cars are never fully written off, you have to track business vs personal usage.

 

[mrmage]

With TSLA around $660ish, I've decided to reduce my position in the first couple weeks of January to pre-S&P levels. My TSLA assets are not in retirement accounts, so I want to defer the sale to 2021 so I can use the cash to invest for 1+ years, rather than taking the gains now and paying taxes in April.

My solution was to buy collars on some shares to lock in the current price. Jan 15 650p/685c and Jan 29 640p/690c.

It's just 15% of my non-margin position, so nothing too dramatic. I might pick up more depending on the SP the next few days or write calls.

 

[MP3Mike]

My TSLA assets are not in retirement accounts, so I want to defer the sale to 2021 so I can use the cash to invest for 1+ years, rather than taking the gains now and paying taxes in April.

Technically your estimated quarterly tax payment for gains earned between 1/1/2021 and 3/31/2021 will be due 4/15/2021. (Where if you sell now the estimated taxes would be due 1/15/2021 unless you file your tax return, and pay all taxes due, by 3/1/2021.)

I think a lot of people here might need to talk to their tax preparer because you may not be in the normal situation you are used to.

 

[ZeApelido]

With TSLA around $660ish, I've decided to reduce my position in the first couple weeks of January to pre-S&P levels. My TSLA assets are not in retirement accounts, so I want to defer the sale to 2021 so I can use the cash to invest for 1+ years, rather than taking the gains now and paying taxes in April.

My solution was to buy collars on some shares to lock in the current price. Jan 15 650p/685c and Jan 29 640p/690c.

It's just 15% of my non-margin position, so nothing too dramatic. I might pick up more depending on the SP the next few days or write calls.

Don't you get penalized if you don't pay quarterly for capital gains realized?

 

[Silent Ludicrosy]

Don't you get penalized if you don't pay quarterly for capital gains realized?

Yes, but there are a couple ways to avoid the penalty.

If you didn’t pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.

Estimated Taxes | Internal Revenue Service

 

[Knightshade]

Don't you get penalized if you don't pay quarterly for capital gains realized?

Depends.

If you are employed then the IRS says you need to pay estimated quarterly taxes if you expect:

You’ll owe at least $1,000 in federal income taxes this year, even after accounting for your withholding and refundable credits (such as the earned income tax credit)
AND
Your withholding and refundable credits will cover less than 90% of your tax liability for this year or 100% of your liability last year, whichever is smaller. (The threshold is 110% if your adjusted gross income last year was more than $150,000 for married couples filing jointly or $75,000 for singles.)

That second one can be a safe haven for not having to pay quarterly taxes (or be hit with a penalty for not doing so) if it applies.

This might apply to someone who didn't have significant untaxed gains last year, but DID this year (say, selling on an S&P spike, or playing some options stuff into inclusion or whatever).

(this is of course a lay opinion, not financial advice, and you should consult a tax professional for your own personal situation, etc)

 

[mrmage]

Don't you get penalized if you don't pay quarterly for capital gains realized?

Technically your estimated quarterly tax payment for gains earned between 1/1/2021 and 3/31/2021 will be due 4/15/2021. (Where if you sell now the estimated taxes would be due 1/15/2021 unless you file your tax return, and pay all taxes due, by 3/1/2021.)

I think a lot of people here might need to talk to their tax preparer because you may not be in the normal situation you are used to.

That's what the cpa I asked said. But a lawyer and our tax accountant said the penalty for non payment is small, on the order of 4 to 5% annually. Pretty sure I can beat that. I'll check again before I sell.

 

[Knightshade]

That's what the cpa I asked said. But a lawyer and our tax accountant said the penalty for non payment is small, on the order of 4 to 5% annually. Pretty sure I can beat that. I'll check again before I sell.

IIRC it's 0.5% per month for not paying what you owe (presumably the clock would start if you miss the Jan 15 quarterly filing for Q4 2020 earnings if you aren't otherwise within the safe harbor I mentioned earlier) so that'd be 6% annually, and I think it maxes out at 25% if you leave stuff unpaid a really long time.

Ford dealerships taking 5%-30% additional dealer markup on MachE because of scarcity Ford Dealerships Shocking Markup on Mach-E Deals Another Win for Tesla Direct Sales

Slow news day I guess?

That story has been making the rounds for a long, long, long time by now.

The Mach E forums has a thread from late 2019 about this and compiling a list of dealers who are NOT charging ADM markup on the car- apparently you can request via the ford reservation process to have your pre-order handled by whatever dealer you want so just pick one from the list if you want to avoid that nonsense.

https://www.macheforum.com/site/threads/official-list-no-adm-mach-e-ford-dealers.95/


Presumably much like legacy auto in general, those dealers who embrace the coming EV switchover and don't screw their customers over it will do better than those who make a different choice and try and punish them for ordering an EV.

I'm not sure if this has been answered, but how likely is it for the Federal EV Tax Credit to be reinstated and back-applied for 2020 if it passes through the legislature and executive branch here in the US?

Pretty near to 0.

 

[StealthP3D]

Technically your estimated quarterly tax payment for gains earned between 1/1/2021 and 3/31/2021 will be due 4/15/2021. (Where if you sell now the estimated taxes would be due 1/15/2021 unless you file your tax return, and pay all taxes due, by 3/1/2021.)

I think a lot of people here might need to talk to their tax preparer because you may not be in the normal situation you are used to.

I'm not a tax expert (but we do have one to do all our taxes) and this doesn't square at all with how our tax payments work.

We file annually and make 4 estimated quarterly payments (all equal) based on the previous year's return. As long as the quarterly payments are at least as large as last year's taxes due, we are good to go (even if the current year's capital gains are wildly higher). Then when we file the annual tax return we make up the deficit (if any). Of course in years that we have a lower tax bill we end up overpaying but I don't mind since it's like cash in the bank and some years we wildly underpay. It all averages out in the end, I think. I'm not up on what might be required (if anything) to get up and running on this method but we have been doing it this way for many years.

Of course I could be wrong because I pay as little attention to taxes as physically possible.