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I've day-traded (in USA) actively during 2020, mostly short trades. Never kept positions overnight, so carried no positions into 2021 (and, similarly, no positions were carried from 2019 into 2020. The cash in the account at the beginning of the year was $300,000, and was about $400,000 at the end of the year. Thus, the actual gain was $400,000-$300,000=$100,000. But my accountant is telling me that the taxable gain, according to form 1099, is $130,000 instead. Explains this discrepancy by some wash-sale rules, but it all appears so absurd that I cannot believe. Shall I assume an error somewhere, or is it really possible that I can be taxed on more than what my actual capital gain was?

more info from the comments:

  • the trades were commission-free. Even if not, the 30% difference is to big to be attributed to some hidden fees.
  • no money was pulled in or out of the account
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  • that's a good question!
    – Fattie
    Mar 21, 2021 at 10:15
  • Is it possible someone is just not considering fees? (which would indeed be a cost of course.)
    – Fattie
    Mar 21, 2021 at 10:16

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If you realize a loss and within 30 days before or after that loss you acquire replacement shares, you incur a wash sale violation. That means that loss must be deferred and the cost basis of the replacement shares must be adjusted.

If you close such positions before the end of the current year, you get claim your loss.

If you carry wash sale violation positions into the next calendar year, you do not get to deduct the loss in the previous year and that results in a larger taxable cap gain income than you actually had.

A large carryover loss could be problematic if you do not have Tax Trader Status because if you do not achieve capital gains in later years then you will be limited to a $3k deduction per year.

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  • Thanks, Bob. No positions were carried into 2021. So everything must have been evened out: even though losses from wash trades cannot be claimed, the cost base readjustment
    – giorgijaparidzevillanovaedu
    Mar 21, 2021 at 19:20
  • from the subsequent trade evens things out.
    – giorgijaparidzevillanovaedu
    Mar 21, 2021 at 19:20
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    Did you avoid buying replacement shares in January within 30 days of a realized loss in December?
    – Bob Baerker
    Mar 21, 2021 at 19:24
  • I think the problem is that 1099 fails to differentiate sort-sales from ordinary (long) trades in its summary report of the sum of all proceeds and all cost bases.
    – giorgijaparidzevillanovaedu
    Mar 21, 2021 at 21:37
  • My broker provides a 1099 and an 8949. The 1099 provides the aggregate total of wash sales for the year but it does not indicate which of those have carryover issues. The 8949 accounts for that and indicates what portion of the aggregate total must be carried over into the subsequent tax year. I make every effort possible to get out of wash sale positions by the end of the year and stay out for 30 days. It's a royal pain otherwise. I don't know how other brokers handle this but if no 8949 available, consider a trader's tax accounting program.
    – Bob Baerker
    Mar 21, 2021 at 21:59

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