Hello,
So I have a client who decided to enter the business of daytrading last year and he has literally 100+ stock trades from three different brokerage houses. I use ProSeries Basic to enter my returns, so I can't upload the statements.
Do I need to enter EVERY single transaction, or can I just enter the total gain/loss from each of the brokerage statements, and be ready to provide this to the IRS in the event of an audit?
Thanks in advance.
---Chris J EA in NJ
I don't normally do returns (other than my own), so this may not be authoritative. But here is my experience -
I was once audited for doing exactly what you propose. At the audit I just gave the IRS a copy of the relevant statements, and they were happy.
If you are a tax professional, I suspect you should upgrade your software so you can upload the statements. Either that or file a hard copy rather than electronically.
Without addressing the issue of trader vs investor....
You can use subtotals on the 8949 for the short As, short Bs, Long As and Long Bs with a Code M that signifies they are subtotals. Not knowing your software, there should be a box to check that says you are going to use the 8453 rather than the 8949 transaction detail. The last box at the bottom of the 8453 should be checked and a copy of the broker statements with the detail attached to the 8453, mailed to the special address in Austin, TX (8453 instructions has the address).
As a side note, I have never heard about a client getting a request from the IRS for the detail that was never sent to Austin. And as Stuart has said... during an audit all the client needs is a copy of the broker statement that supports the cost basis. Also note that if the transactions are all type As, then there is no need for the 8453 as the IRS already has the sales proceeds and cost basis information.
It's been a few years since I used ProSeries Basic, but if they still give you the full ProSeries as a PPR product, here's what you can do. Open the return in the full ProSeries. The full version can import .txf files. Some, but not all brokers will provide their data in this format. There are also other ways to import data in the full package. Once you've imported your data, close the client file and re-open it back in ProSeries Basic. You only have to pay the PPR charge if you print or efile the return from the full package.
I used to use this method for various situations where ProSeries Basic was missing the functionality I needed.
Ira Smilovitz
Alas, I have several clients who imagine they are professionaal traders, and have many many pages of gain/loss, and wash sales are common,
The abbreviated reporting method which bypasses the 8949 is not authorized with wash sales.
And IRS has those too, but still disallows abbreviated reporting.
Instructions for Form 8949 describe 3 exceptions, numbers 1 and 3 are relevant here.
Exception 3 bypasses the 8949 altogether in favor of reporting directly on Schedule D, which is what Art K. is describing.
Exception 1 allows summary row(s) to be entered on 8949 with details in attached statements. This works even with wash sale adjustments.
Thank you very much! I suppose I should have already known about it, but the Form 8453 is a godsend and that works best for this situation. I believe I heard about it in passing before but I never had a client who thought he was going to be making a living being a daytrader and had so many trades.
Thanks everyone!
Chris J, EA in NJ
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