When you trade call options, the sale must be reported to the Internal Revenue Service. Unlike the way they do with stock trades, brokerage firms do not send you a Form 1099 reporting the basis of every option trade. Instead, you must use your brokerage statements to match up each individual option trade. Because most call options expire in less than a year, you report them on Form 8949 and Schedule D as short-term capital gains or losses.
Start with Form 8949, Part I, Short-Term Capital Gains and Losses. Check Box C since you did not receive a Form 1099. On Line 1, Column A, Description of Property, enter the name of the company or its symbol, and after that write "call options" and the number of call options you sold. Skip Column B and move to Column C, Date Acquired. Enter the date you purchased the call option, in month, day and year format. In Column D, Date Sold, enter either the date you sold the call option or the date it expired, using a month, day and year format.
Move to Column E, Sales Price, and enter the sale amount reported on your brokerage statement. If the option expired worthless, write "expired" in the column. Now take the amount you paid for the call option as reported on your brokerage statement and enter that figure in Column F. Skip Column G. Use the same procedure to report each call option that you sold. When finished, add up Columns E and F and enter those totals on Line 2, Columns E and F.
Take the amounts on Form 8949, Line 2, Columns E and F, and transfer them to Schedule D, Line 3, Columns E and F. Skip Column G. Move to Column H, Gain or Loss, and subtract Column E from Column F. Enter the gain or loss in Column G. Finish completing the Schedule D, and transfer the final amount to Form 1040, Line 13.
Items you will need
- Monthly brokerage statements
- IRS Schedule D
- IRS Form 8949
- Keep a ledger of each option trade and compare it with your monthly brokerage statement to keep accurate records of your transactions.
- LEAPS, or long-term equity anticipation securities, are options that are normally held one year or longer and are reported as long-term capital gains or losses.
- If you sell a covered call and the call is exercised, the amount you receive becomes part of the stock transactions gain or loss.
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