What is the wash-sale rule in USA?
When you sell an investment that has lost money in a taxable account, you can get a tax benefit. The wash-sale rule keeps investors from selling at a loss, buying the same (or "substantially identical") investment back within a 61-day window, and claiming the tax benefit. It applies to most of the investments you could hold in a typical brokerage account or IRA, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), and options.
More specifically, the wash-sale rule states that the tax loss will be disallowed if you buy the same security, a contract or option to buy the security, or a "substantially identical" security, within 30 days before or after the date you sold the loss-generating investment (it's a 61-day window). CLICK ON LINK BELOW FOR DETAL
What is Superficial Loss rule in Canada?
When you sell your investment at a loss and reacquire the identical property, in some cases, the loss may be a superficial loss. When you realize a superficial loss, you cannot claim the loss and therefore, you cannot use it to offset capital gains. Instead, the loss is added to the adjusted cost base (ACB) of the identical property reacquired.
During the period that begins 30 days before and ends 30 days after the settlement date of the disposition (e.g. when you sell the property), you or a person “affiliated” with you acquires the identical property that was disposed of at a loss. Although the rules may be complex, affiliated persons include you, your spouse, a corporation controlled by you and/ or your spouse, and a trust where you and/or your spouse are majority interest beneficiaries. Therefore, when you dispose of your investment at a loss, you need to consider the 61 days that includes the 30 days before, the day of and the 30 days after the settlement date of the disposition. CLICK ON LINK BELOW FOR DETAIL
In US you can qualify Traders Tax Rule TTS
Volume, frequency, and average holding period are the “big three” because they are more accessible for the IRS to verify.
Volume: The 2015 tax court case Poppe vs. Commission is a helpful reference. Poppe made 720 total trades per year/60 per month. We recommend an average of four transactions per day, four days per week, 16 trades per week, 60 a month, and 720 per year on an annualized basis. Count each open and closing transaction separately, not round trip. Scaling in and out counts, too.
Frequency: Execute trades on nearly four weekly days, around a 75% frequency rate.
Holding period: In the Endicott court, the IRS said the average holding period must be 31 days or less. That’s a bright-line test.
Trades full-time or part-time for a good portion of the day; the markets are open almost daily. Part-time and money-losing traders face more IRS scrutiny, and individuals face more scrutiny than entity traders.
Hours: Spends more than four hours per day, almost every market day, working on their trading business — all-time counts.
Avoid sporadic lapses: A trader has few to no intermittent stoppages in the trading business during the year. Vacations are okay.
Intention: Has the intention to run a business and make a living. It doesn’t have to be your primary living.
Operations: Has significant business equipment, education, business services, and a home office.
Account size: Securities traders need to have $25,000 on deposit with a U.S.-based broker to achieve “pattern day trader” (PDT) status. For the minimum account size, we like to see more than $15,000.
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What is Capital gain?
A capital gain occurs when you sell an asset for more than its adjusted cost base (ACB). The ACB is simply the purchase price of the investment, plus any acquisition costs, such as commissions or legal fees. For example, let’s say you purchased an asset for $100 and later sold it for $200. The difference between the purchase price and the sale price (i.e., $100) is the capital gain.
On the other hand, a capital loss occurs when you sell an asset for less than its ACB.
When filing your personal income tax return, the Federal and provincial taxation authorities, such as the Canada Revenue Agency (CRA), allow you to offset capital gains with capital losses, thus sheltering the capital gain from taxation. Take note that capital losses can be used to offset a capital gain in any of the 3 preceding years or in any future year (i.e., they do not expire).
How Capital Gains Tax is calculated?
In Canada, the taxable capital gain must be reported as income on your tax return for the year the asset was sold. The income is considered 50% of the capital gain.
For example, if you sold an asset for $2,000 that has an ACB of $1,000, the taxable income is $500. ($1,000 gain x 50%). The $500 will need to be added as taxable income and you'll be taxed at your marginal tax rate based on your tax bracket.
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Is Day Trading a Business Income or Capital Gain?
For day traders, any profits and losses are treated as business income, not capital.
As a result, you can’t use the 50% capital gains rate on any profits. Instead, 100% of all profits are taxed at your current tax rate.
At the same time, 100% of any losses are deductible too; that can be applied to other sources of income as well.
For example, if you report an annual trading loss of $15,000 this year and you also run a business, you can deduct your trading losses against other sources of income. This includes money made from your other business, which can significantly reduce the amount you pay in taxes.
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