Investing Accounts -- Does the total "acquisition cost" matter for taxes? Or does only the "realized gain" matter?

Question

If I buy and sell the same stock or ETF many times throughout the year (basically day and swing trading), to the point where by the end of the year the total "acquisition cost" or "cost basis" put into it reaches (as an extreme example) $500,000,

Will that matter when it comes time to do taxes? Or, will all that matter be the amount I actually profited (or lost) ?

For example, let's say my portfolio is only worth $20,000, but after purchasing, selling, and repurchasing the same stock over and over again, I ended up with an "acquisition cost" of $500,000-worth of the same stock throughout the year, and by the end of the year I had "liquidated" $510,000 worth of the stock (for a $10,000 gain),

Will I only need to pay taxes on the $10,000? Or do the huge amounts of $500,000 or $510,000 somehow come into play?

Answer 1

Acquisition cost is relevant to data entry in the capital gains schedule but in terms of taxation, your only concern is realized gains and realized losses.

The one area that you should be mindful of is Wash Sales. If you're careless, you could end up with disallowed realized losses that will need to be carried into the next tax year. That will result in a higher tax burden in the current year. This can be avoided by closing all involved positions by the end of the year and remaining out for 30 days.

Note that for short positions, you must close two business days before the end of the year. Until the 30 abstinence period ends, you can trade another ETF that is not substantially identical.