All Things Tax

All Things Tax

Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.

Valued Pioneer
Posts: 4
Registered: ‎04-15-2015

Substantial Losses On Stock Options for 2016 Year - Best Way To Deduct?

So I did something incredibly stupid. Went out, and bought a ton of options around the time netflix was due to release earnings and membership info, and while everyone and their brother was saying (funny how that works) they were going to fall short...the stock shot up 20% overnight. Of course, since I had bought a ton of short options, I lost my ASSets. The losses totaled over $35,000. During that time, I was trading as an added way to earn additional income. I received multiple notices from td ameritrade when I would buy and sell options in the same day saying I would have to change my account type to that of a daytrader (or something like that). 


I want to deduct all of those loses in 2016. Not do the 3,000/year max traditional stock losses are limited to. Since these trading losses were what I was doing  as part of my day job (I also own my own business that is run out of my home), how can I claim the net losses from 2016 against my businesses earnings?


Thanks for any help!

Trusted Council Member
Posts: 6,191
Registered: ‎02-23-2016

Re: Substantial Losses On Stock Options for 2016 Year - Best Way To Deduct?

Hi lupitchr1,



While it would be awesome if you could deduct capital losses on Schedule C that is not allowed even if you are a "trader" who is in the business of buying and selling stocks.  You can deduct up to $3,000 of your loss against other income, and the after that the remainder is carried forward to the next year for up to five years until it is used up.


You carryforward amount first offsets your short-term gain for the next year and then your long-term gain for the year.  Once you capitals gains have been offset you can deduct another $3,000 against your other income on your Form 1040.  Then, the remainder is again carried forward to the next year.


Once thing you can do is that if you qualify as a trader you can deduct your expenses related to selling stock, options, etc. on a Schedule C for that activity.  This will give you some expenses to deduct against your other income.  Expenses that are deductible for traders include margin interest & equipment used more than 50% of the time for business purposes in your trading business.


Traders can also deduct all of their losses in the current year (your gains and losses are still reported on Schedule D) but be careful because you may better off carrying your losses forward to offset future gains if you plan on continuing your trading as a business.


According to the IRS you qualify as a trader if:


"you buy and sell stocks almost every working day. You can be a part-time trader, and have  a regular day job, but you should trade every day. You have to have a consistent pattern of making a number of trades. Your goal should be to make money from the short-term market swings, instead of long-term appreciation or dividend income."



If you have any other questions I'll be glad to help.



Senior Tax Advisor (Tampa, FL)