Tax Tips for Procrastinators

Q: How do you report a short position on your tax return?

Only when a short position is closed is there a taxable event. So you report short sales only in the year you cover them. If you are holding an open short position at year-end, you won't owe tax on it.

But if you have open positions on Dec. 31, the gross proceeds reported on your Form 1099-B -- Proceeds from Broker and Barter Exchange Transactions -- will be greater than the amount you report on your tax return.

You'll need to attach a reconciliation schedule. It can be a plain sheet of paper with your name and Social Security number on it. Write "see attached schedule" in column (a) of your Schedule D - Capital Gains and Losses, then attach a form that should look something like this:

• Gross proceeds from Broker ....xxxx
• Less short sales to be reported next year ....yyyy
• Total reported on Schedule D ....zzzz

The final number should be the total sales in column (d) on Schedule D.

Big note: If you're a trader in the eyes of the IRS and you elect to mark your trades to market (see this story for those gory details), your shorts would all be recognized at the end of the year, regardless of their position.

Q: I have a question about broad-based index options that receive 60/40 treatment: Do profits from short sales get 60/40, or do they come under the "all short-sale profits are short-term capital gains" rule?

When you short a broad-based index, your gains and losses on the short position will be subject to the so-called 60/40 rule.

The 60/40 rule applies to any regulated futures contract, foreign currency contract or nonequity option (options on stock index futures or broad-based stock indices, such as the S&P 500 index), according to Section 1256 of the tax code.