Last year about this time I wrote about the explosion of support requests at ICLUBcentral concerning wash sales. I warned against generating a loss sale. Judging by the increased number of wash-sale help requests, this tax season the warning wasn’t heard.
A wash sale occurs when a sale is made at a loss and a purchase of the same security is made within 30 days of the sale. The purchase can be made before or after the sale that generated the loss. When this occurs the loss isn’t allowed for tax purposes. In addition, changes must be made to the cost basis of the repurchased shares and to their holding period. The amount of the loss is added to the purchased shares’ costs. The holding period is changed to the holding period of the shares sold.
The online accounting program myICLUB.com doesn’t have an entry screen that makes the wash sale changes needed. The changes needed to account for a wash sale can be made using other currently available entry screens. Although the transactions aren’t difficult to enter, calculating the amounts can be time-consuming. You may need to view multiple accounting reports as well as inspect your individual transactions to gather all the information for making the calculations for the entries. The date given to the wash sale transactions are important so that the proper block of shares has its cost basis adjusted to reflect the wash sale rules.
Save yourself the extra work. Watch your buy and sell decisions to avoid wash sales. Dividend reinvestment programs have been a major generator of wash sales the past two years. If you’re enrolled in a DRIP and considering a sale of the security, check your dividend timing or consider withdrawing from the DRIP, if this is compatible with the club’s investment goals. This can save time and aggravation for the treasurer. But you don’t want the small amount of extra work to drive investment decisions that otherwise meet your investment goals.
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ICLUBcentral Inc. develops powerful, commonsense tools for investment clubs and independent investors, including software products such as Toolkit 6 , the StockCentral.com and EquityResearchService.com stock research sites, the myICLUB.com club accounting service, MyStockProspector stock screen program and the market-beating Investor Advisory Service newsletter. ICLUBcentral, a wholly owned for-profit subsidiary of nonprofit investment education association BetterInvesting , has remained true to BetterInvesting’s fundamental investing principles while serving millions of individual investors striving for financial freedom. For more information, visit www.iclub.com . (edit)