Mike Bauer's Return: Time to Tally Trades for Uncle Sam

Editor's note: TSC is doing reader Mike Bauer's tax return to illustrate how tax laws apply to real people. On Wednesday, we introduced Bauer and his family and spotlighted his Form 1040. Thursday , we showed you how Bauer handled the conversion of his IRA into a Roth IRA and the refinancing of his mortgage. Today, we'll take a close look at how he reports his trading activities on Schedule D. Saturday, we'll answer your questions in Tax Forum.

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Mike Bauer played the trading game in 1998 and walked away with a $5,000 gain. Now it's time to give Uncle Sam his cut.

Bauer's meticulous record-keeping will, perhaps, ease the sting of the tax bite. Every night when he comes home from work, Bauer updates the Excel file that holds his schedule of trades. When buying and selling securities, he records all the information he'll need for his tax return, including the date acquired and sold, the purchase price and the sale price. In addition, he enters closing prices, highs and lows and average volume for all his holdings every night.

Come tax time, he simply prints out this schedule, titles it "Statement 1" and attaches it to the back of his tax return. (He should be sure to put his name and Social Security number on the statement, adds Brent Lipschultz, a senior manager at KPMG's Washington, D.C., national tax practice.) ...