Options Trading Tutorial

How are the earnings from Options trading reported to IRS by brokers?

I have some earnings from trading in options on stocks in the share market. My broker has informed me that no form 1099 is issued in respect of earnings from options trading. That being so, how does the IRS know what earnings an options trader had in a given year?

Public Comments

1. They are not reported.
2. Options trading is a very complex issue to which there could be an exception but generally I have found that all the options trades are reported. The taxpayer is responsible to calculate the earnings as they are with stock sales. If the taxpayer fails to correctly calculate and keep records to prove that gain or loss to the IRS should they be subject to an audit the taxpayer has a major problem. Brokers are some times unreliable when it comes to tax law.
3. The IRS will not know from the brokerage firms reporting what profit you have earned from trading options. However is subsuquent years they might uncover your brokerage account statements and discover the under reporting there. A reminder you can deduct trading and financial advisory expense in certian cases. ( this expenses might offset your trading profits). Check with your tax advisor