What the account shows
+$1,270.65
Realized gain. Feels like yours.
Keep what you make.
The account shows gross. Taxes decide net. Every lesson on this site is about making the number go up. This one is about how much of it you actually keep. Not advice. Not a CPA. Just the map.
not advice · US rules · talk to a CPA
Why this lesson exists
Nobody blows up in April because they read the greeks wrong. They blow up because they spent the tax money. Trading gains have no withholding. A paycheck takes taxes out before you see it. A closed trade does not. You are your own payroll department now.
The split.
One line decides most of your tax bill: how long you held. Hold over a year, you get long-term capital gains rates (0%, 15%, or 20% for most people). A year or less, it's short-term, taxed like a paycheck at your ordinary income rate, up to 37% federal.
Now the part that matters here: selling premium is short-term income, basically always. A 30-45 DTE contract cannot age past a year. Every credit you collect and keep lands in the short-term bucket. Same for scalps, swing trades under a year, and almost everything a 5-minute bot does.
Takeaway: the seller's whole book is short-term. Plan every realized gain at your ordinary rate, not the 15% you heard about on YouTube. That 15% is for shares you sat on for a year.
the lessonWhere each thing you do actually lands
- Sold a put, it expired worthless — the premium is a short-term gain, recognized when it expires.
- Sold a put, bought it back cheaper — short-term gain on the difference, recognized when you close.
- Covered call expired worthless — premium is short-term gain at expiration. The shares underneath keep their own clock.
- Shares held 8 months, sold green — short-term. Held 13 months — long-term.
- Losses — they offset gains first (short against short, long against long, then across). Up to $3,000 of leftover net loss can offset ordinary income per year; the rest carries forward.
One more layer for bigger years: high earners can owe an extra 3.8% net investment income tax (NIIT) on top, once income crosses the threshold (around $200K single). It sneaks up on people in their first good year.
Assignment moves the tax, it doesn't erase it.
When a short put gets assigned, you don't book the premium as income right away. It folds into the stock: your cost basis on the shares is the strike minus the premium you collected. The tax event waits until you sell the shares.
Covered call assigned? Premium gets added to your sale proceeds. Either way the IRS gets the same total eventually. What changes is the timing and, if you end up holding the shares over a year, sometimes the rate.
the lessonA wheel cycle, taxed end to end
Say you wheel a stock at a $50 strike:
- Sell the 50 put for
$1.20. Assigned. No tax yet. Basis =$48.80. - Sell the 52.5 call for
$0.90. It expires worthless. +$90 short-term gain, taxed this year. - Sell another call, get assigned at
$52.50. Proceeds =$52.50 + premium. Gain over the$48.80basis is taxed when the shares go, short or long depending on how long you held them.
The trap: a wheel that runs all year books gains in pieces. Each expired call, each closed put, each called-away lot is its own taxable line. The 1099-B gets long. None of it withheld anything.
The 60/40 rule.
There's one legal cheat code in this whole lesson. Certain contracts, called section 1256 contracts, get taxed 60% long-term / 40% short-term no matter how long you held them. Held it 5 minutes? Still 60/40.
What counts: broad-based index options like SPX and XSP, and futures. What does not count: options on individual stocks and ETFs. Your SNDK puts are regular short-term income. An XSP put doing roughly the same job gets the blend.
Two more 1256 quirks: open positions get marked to market on December 31 (you're taxed on unrealized gains at year end), and the wash sale rule doesn't apply to them.
Same gain, two tax treatments
As regular short-term (stock options, scalps)$2,400
As section 1256 (60/40 blend)$1,860
The blend keeps you an extra$540
Federal only, ignores state, NIIT, and bracket creep. The point is the shape, not the penny.
Takeaway: if a trade idea works on an individual name and also works on the index, the index version can keep meaningfully more after tax. Not a reason to force it. A reason to check.
Wash sales. The 30-day tripwire.
Sell something at a loss, buy it (or something substantially identical) back within 30 days before or after, and the loss is disallowed for now. It doesn't vanish; it gets added to the basis of the replacement position. But it stops helping you this year.
Options make this messier: options on a stock count against the stock. Take a loss on shares, then sell a put on the same name inside the window, and you can trip it. The rule even reaches across your accounts, and losses washed into an IRA are gone for good.
the lessonHow an active seller trips it without noticing
- The re-entry: stopped out of shares red on Monday, "it's still a good setup," back in Thursday. Washed.
- The wheel restart: shares called away at a loss (rare but happens), you sell a new put on the same name next week. Potentially washed.
- The roll: closing a losing put and opening another one on the same underlying is the definition of buying something substantially identical inside the window. Brokers report these; December rolls are how a paper loss becomes taxable-year pain.
The clean exit: if you want the loss to count this year, stay out of the name (shares and options) for 31 days. If you're never going to stop trading the name, the washes mostly net out over time; the year you really care is the year you quit the ticker in December.
Crypto: every swap is a sale.
If you came here from the token side, this is the part to slow down on. The IRS treats crypto as property. That means selling for USD is a taxable event, but so is swapping SOL for a memecoin, swapping the memecoin back, or paying for anything with it. The gas token you spent has a gain or loss too.
- –Taxable: selling, swapping token-for-token, spending it, getting paid in it.
- –Not taxable: buying with USD and holding, moving coins between your own wallets.
- –Staking rewards: ordinary income at fair market value the moment you control them. Then that value becomes your basis for the later sale.
- –Wash sales: as of now the wash sale rule does not apply to crypto. Sellers can harvest losses and re-enter same day. Congress keeps proposing to close this; check before you lean on it.
The on-chain reality
Your broker sends the IRS a 1099 for your stock trades. Nobody is doing that for your DEX swaps. The chain is public and permanent, and exchanges report more every year. "I forgot" ages badly when the ledger is immortal. Track it as you go; a hundred memecoin swaps reconstructed in April is a bad week.
Quarterlies. The IRS wants it during the year.
Income tax is pay-as-you-go. A job handles that through withholding. Trading income doesn't, so if you're making real money, the IRS expects estimated payments four times a year, and charges interest-like penalties when you skip them.
Q1
Apr 15
For Jan – Mar
Q2
Jun 15
For Apr – May
Q3
Sep 15
For Jun – Aug
Q4
Jan 15
For Sep – Dec, next year
the lessonSafe harbor — the simple way to never owe a penalty
You avoid underpayment penalties if, through the year, you pay in at least one of:
- 90% of what you'll owe this year (hard, you don't know it yet), or
- 100% of last year's total tax (110% if your income was over $150K). This one you can read straight off last year's return.
The move: take last year's total tax, divide by four, autopay it on the four dates through IRS Direct Pay. Done. If this year is way bigger, you'll still owe the difference in April, but no penalty, and the set-aside bucket below covers the gap.
The set-aside. Skim it before you feel rich.
Everything above compresses into one habit: every time you realize a gain, move a fixed percent to a bucket you do not trade. High-yield savings, treasury bills, anything boring. That bucket is the IRS's money sitting in your name until the deadline.
Set-aside calculator
Set aside (don't touch it)$304.96
Actually yours$965.69
Effective skim24.0%
Texas has no state income tax, so 0 is right here. California runs up to 13.3%. This is a planning skim, not a filing calculation; brackets are marginal and your real bill depends on everything else on the return.
Takeaway: the skim only works if it's automatic and boring. Pick the rate once, apply it to every green close, never negotiate with yourself in a drawdown. The traders who hate April are the ones whose tax bucket was also their revenge-trade bucket.
Records. April is too late to start.
| What | Who tracks it | Your job |
|---|---|---|
| Stocks & options | Broker 1099-B | Check it against your own log; flag wash-sale adjustments you didn't expect |
| Futures / index options | Broker 1099-B (1256 box) | Almost nothing; 60/40 and mark-to-market come pre-summarized |
| CEX crypto | Exchange 1099 (partial) | Export the full history yourself; the forms rarely show true basis |
| DEX / on-chain | Nobody | All of it: every swap, date, USD value, gas. Export monthly, not in April |
| Staking rewards | Sometimes nobody | Value at receipt is income and your future basis; log it when it lands |
When to get a professional
The point where a CPA who knows traders pays for themselves: your first year over ~$50K of realized gains, the first year assignment and wash sales tangle, or the moment you're wondering about trader tax status and mark-to-market elections. That last one is a real thing with real deadlines and is exactly where this page stops. This lesson is a map, not a filing.
Next lesson
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Entities, structure, and the legal side → LLCs, trader tax status, 475(f), the S-corp move, and the snake oil shelf. Where this lesson's rules meet the paperwork.