If this has been dealt with before please feel free to point me there...
So i am doing my 2010 tax return. let us assume that I am classified as a trader for the purpose of options assessment, and we are dealing with written options that are open at 30 june 2010.
From a report by Deloitte entitled 'tax treatment of ETOs' it states that traders and speculators should be assessed on premium of options written when recieved /recievable (as income). The report also moots an alternative that the speculator should be assessed on net profits or losses when the position is closed out, but says this is "not the preferred argument"
If using the first method ie declaring all the premium as income in the year the option is written, the report goes on to completely fail to mention what would then happen if you closed out the position (resulting in either a loss or a net profit less than the premium originally recd) before expiry in the following tax year. If you had declared the premium as income presumably you would then claim the cost to buy it back as an 'expense' in the following year? Even though the net result may be correct in a lot of cases the effect is to pay tax in advance on profits that dont really exist at that point
I much prefer the second method, which makes more sense, which would mean that any short option positions open on 30 june 2010 , would be not reported on at all in the 2010 tax year but would be reported in the 2011 year once a 'result' had been obtained.
anyone have this same problem and how do you treat it?