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How do I enter a short cover?

msindc1
Level 4

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

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5 Comments 5
George4Tacks
Level 15
joshuabarksatlcs
Level 10

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. 


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George4Tacks
Level 15

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. 


Answers are easy. Questions are hard!
joshuabarksatlcs
Level 10

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.    


I come here for kudos and IRonMaN's jokes.
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joshuabarksatlcs
Level 10

@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.


I come here for kudos and IRonMaN's jokes.