Folks:
My client has a series of short cover transactions on his 1099-B. For most of them, the cost and proceeds data looks normal: Cost of $5,000, proceeds of $6,000. I assumed that these were entered in Lacerte just like any other stock transaction. But one of the transactions shows proceeds of $6,000 but a cost of $70,000! I have not yet asked the client if that is correct, which I will do, but in the meantime this got me worrying that I was not entering the transaction correctly in Lacerte. Is there anything special to be done with it?
Thanks.
Micah
Talk with the client.
RE: But one of the transactions shows proceeds of $6,000 but a cost of $70,000!
Example: If you shorted 1,000 shares of GameStop Corp (GME) at $5 on around 7/1/2020, and covered on 3/1/2021, you could need $189,000 to cover. If you covered today, the bill would still be around $125,000. Based on GME's financials, using the traditional pricing models, shorting at $5 might not even be that bad an idea at that time.
Yes, as @George4Tacks suggested, ask the client - and brace for his/her pain, that is, unless the 1099-B was wrong. A suggestion: ask while the spouse is NOT there.
Actually if you identify the stock in issue, you may have a clue.
I once had a client (retired) that decided to trade in gold futures.
1st year - loss of $75K. I cringed a bit. He said - But it will recover!
2nd year - loss of $125K. A certain body part clinched a bit. He said - But it will recover!
3rd year - loss of $150K. I asked if he knew what a gambling addiction was and he responded with a description. I then said "Think about it."
He called the next day and thanked me for the thought I had passed on to him.
I never saw or heard from him again.
I never saw or heard from him again.
Most addicted to gambling know they have a problem and perhaps even regret every time they vow to quit. Your ex client had his moment of reckoning when he thanked you. Then he probably lost another $250K and decided not to face you. You tried to help him but instead helped yourself lose a client.
Perhaps he's now the fund manager for Fidelity's upcoming Crypto Retirement Fund.
@msindc1 You may also want to visit the angle of the Active Trader classification.
If your client qualified for the active trader status, all of his/her losses from trading become active, ordinary losses for tax purposes. This avoids the applicability of the $3000 capital loss deduction. Bear in mind there are applicable regulations and compliance implications.
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