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  • biglefthook_00 biglefthook_00 Jan 18, 2013 10:12 AM Flag

    Tax question...

    If you sell calls and they expire worthless but never lose that trade; can you defer taxes forever?

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    • there is a small trick to it... ya ready?...

      if you have long shares in your account and you write a call and it expires worthless then the transaction of the options is considered by the IRS as CLOSED and you pay tax... pending of course if it is a taxable or non-taxable account that the transaction of the opening of the call contracts took place... we say that carefully cuz people do transfer their options and stocks in and out of accounts... this is if its a non-taxable-IRA-type acount... then there is no tax unless you withdraw/transfer-out... now if it stays in an IRA-non-tax-type account then it is only taxed at the time of withdrawal... that's what most people typically do in their later years when their tax bracket is lower and income has dropped... but you know that already so let's finish the tricky part...

      but if the writing of covered calls is attached to stock held long in the account then the ASSIGNMENT forces the sale of those specific-tax-lot-shares then the cost basis of the stock is lowered and you wouldn't pay the tax on the option call writing but you would end up paying tax on the shares cuz the cost basis was lowered from the covered-call-writing...

      wait... this gets trickier... but a good tricker... what if you have shares that are long-term instead of short-term and you write the covered call and those options cause the ASSIGNMENT?... then in essense you'd pay a lower-tax-rate of long-term-cap-gains on the covered-calls that executed the ASSIGNMENT... you don't pay short-term-cap-gains on that ASSIGNED OPTION PREMIUM... the option premium gets tagged into the long-term-shares and simply reduces their cost basis as if you bought the shares as a lower price and the tax event will act as if you never written the option... a nice savings if in a taxable-event-account and something to consider if you want to make more money... and gosh knows how much we love making money

    • typo..never close that trade..

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