GainsKeeper Takes The Work Out of Investing  While all investors must file taxes, each investor may have a different tax-lot accounting issue. With approximately 6,000 corporate actions occurring each year, most buy and hold investors will encounter a corporate action that affects their cost bases. A large number of passive investors calculate their gains and losses incorrectly due to these corporate actions. Active traders, on the other hand, will struggle with complex wash sale calculations. Depending on the volume of trades, these calculations can be nearly impossible to calculate by hand. Not until all positions are adjusted for wash sales and corporate actions can tax lot matching for capital gain calculations or tax-smart trading decisions be conducted. Investors who buy some securities as long-term investments and others as short-term plays encounter both cost basis challenges. What is a wash sale? The IRS created the wash sale rule under Section 1091 to prevent investors from recognizing 'artificial' losses by selling a stock for a loss, and then repurchasing the stock within a short period of time. The wash sale 'window' starts 30 days prior to the sale, includes the date of sale, and ends 30 days after the sale - for a total of 61 days. If an investor sells the stock at a loss, and then buys a 'substantially identical' replacement stock within this 61-day window, the loss is deferred until the replacement shares are sold. The pro rata loss is added to the cost basis of the replacement shares purchased, and the holding period of the replacement shares includes the holding period of the original shares sold. However, the deferred loss will eventually be recognized when the replacement shares are sold. The wash sale rule tends to be confusing for investors, and can be nearly impossible to keep up with for active traders. Thankfully, GainsKeeper will continuously monitor your accounts for wash sales, and will automatically update your cost basis and capital gain/loss report in the event that a wash sale occurs. Wash Sales can be avoided by waiting to repurchase replacement shares until after the 30-day window closes. What are Corporate Actions? 'Corporate Actions' (C/A) represent any material change to a security. This can be as simple as a name change, dividend or a stock split; but also includes reverse splits, mergers, spin-offs, and liquidations. In many cases, a corporate action will result in a change to the cost basis of a security. Corporate actions activity increased from approximately 5,000 events in 1999 to 6,400 events in the year 2000; a strong increase of 22%. Corporate actions volumes continue to show an upward trend as M&A activity in the technology industries increases, and marked volatility leads to splits and reverse splits. The impact is widely felt by individual investors. A sampling of 30,000 GainsKeeper users showed that a full 33% needed assistance with corporate action events in 2000 alone. While corporate action volumes fluctuate from year to year, they are not dependent on trading volume or market health. Certain corporate action events may in fact increase in a down market, with companies emerging from bankruptcy restructuring, or executing reverse stock splits in order to boost their stock price. GainsKeeper Home      © 2025, Wolters Kluwer Financial Services WEB4  GainsKeeper® Privacy Statement