Stock Trading-Tax Considerations

Tax implications are of course an important consideration for anyone who delves into the world of investing. As everyone should know, tax laws can always change and evolve and a tax professional should be consulted when necessary. One particular law that can come into play involves "wash sales" In the absolute most basic sense it can become a factor for recognizing a loss if one sells a stock at a loss and then buys that same stock back again within more than a 30 day window.

Perhaps the easiest way to completely remove the potential of wash sales from the picture is to simply not buy a specific stock until more than 30 days after it was sold at a loss. Done! With the NSP there are other opportunities elsewhere after all with up to 200 available stocks each week. Traders can also choose to elect a mark-to-market method of accounting the benefits of which depend largely on one's own situation.

Even with that discussion however, it should be stated that there is nothing inherently wrong with executing wash sales anyways. If is not necessary to completely shy away from them. They just have to be accounted for properly. There is software out in the marketplace that will perform those calculations if needed also. Beyond that though, wash sales may not be a concern for many anyways unless they occur near the end of the year and/or beginning of the next. For example, selling a stock at a loss in December 2010 and then buying it back in the following year before 31 days have elapsed could disallow the year 2010 loss from a tax perspective. Perhaps more accurate than "disallow" the loss it could possibly better be described as "postponing" it into the next year. That is because the disallowed loss can be added to the tax basis of the replacement stock.

For multiple reasons, please note that the NSP Method does NOT exclude any potential wash sale stock candidates from its weekly rankings or results calculations. It is just a tax rule to be aware of though for those it applies to.

We cannot emphasize strongly enough that we are NOT tax professionals and cannot guarantee any accuracies from this discussion. With that thought of a lack of expertise clearly in mind we also cannot vouch for the accuracy or completeness of what another independent party may state either of course. However, the following is very well presented and could prove to be a useful link for further research:

http://www.fairmark.com/capgain/wash/index.htm

One could also go right to the source for more information at:

http://www.irs.gov/publications/p550/ch04.html

Please always consult a tax professional when needed.

by Bill Nowatske -

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Source: http://nowvest.com/stock-trading-tax-considerations.html