OptionsTaxGuy

You can perform many of the same functions that the above software packages can perform with a spreadsheet and some diligence.  In fact, the process I use is a combination of Excel and Access.

Here is the basic process:

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1. Identify the data elements needed to completely report a transaction, see Doing It Yourself

2. Develop a uniform system for identifying each trade, particularly if you trade options.  The Options Symbology Initiative has accomplished this for you.  I have developed a template that will do this.

3. Make sure to include the open transactions from the prior year, if any.

4. Make sure you identify each of the opening and closing transactions.  This is easy for stock, it is a Buy or a Sell Short and the corresponding Sell or Buy To Cover.  For options it can be more difficult, especially if your broker (or your broker’s back office agent, ie, Penson Financial Services) does not provide a closing transaction if the option you opened expires worthless.  Click here to see how this is handled.

5. Sort all your options transactions by OSI symbol first then by trade date.  Remember that taxable transactions are based on Trade Date not Settlement Date.

6. Match the quantities on a FIFO (first-in, first-out) basis.

7. Once you have all transactions matched, reconcile your remaining open transactions to your December brokerage statement of option holdings.

8. Stock transactions will need to be evaluated for:

•  Wash sales
•  If they were acquired through put assignment/call exercise
•  If they were sold via option call assignment/put exercise

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Once you have accomplished these procedures, you may have all the information needed to file your tax return.

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So, are you required to use Form 8949?  No, according to the IRS instructions for Form 8949 you do not need to report every transaction on a separate row as long as all the required information is provided.  This is called Exception 2 reporting and is described as follows:

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Instead of reporting each of your transactions on a separate row of Part I or Part II [Form 8949], you can report them on an attached statement containing all the same information as Parts I and II and in a similar format (ie, description of property, dates of acquisition and disposition, proceeds, basis, adjustment and code(s) and gain or (loss)). Use as many attached statements as you need. Enter the combined totals from all your attached statements on Parts I and II with the appropriate box checked [Box A - C for Part I and Box D - F for Part II].

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So if your spreadsheet provides all the required information you simply need to input the totals for each Box on your Schedule D and input code M in the Adjustment Code (col f) on Form 8949 and attach the spreadsheet to your return as a pdf.  Your Form 8949 could possibly only be 1-6 lines if you capture all your trades on the spreadsheet!

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