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What you’ll learn
Understand the basics of the stock market
Options are a poorly understood asset class to most investors, but have many uses for astute planners. No, we aren’t talking about the type of options your company might grant you, but publicly traded options. For example, adding an options enhancement component to your overall investment strategy may be a great way to enhance how much income your portfolio produces. But what are the tax implications of more income?
Assuming we are talking about a taxable account, it depends on what type of options being traded: options on individual stocks, or index options (think S&P 500, Russell 2000, Nasdaq 100, etc). We can and do trade both types, depending on the situation. Though there are exceptions, most individual stock options we trade will be taxed 100% at your short-term tax rate — as ordinary income.
One benefit index options have over individual stock options is the IRS treats them as “Section 1256 Contracts,” named for the section of the IRS Code that describes how investments like some options must be reported and taxed. Regardless of how long you own them, gains/losses on Section 1256 contracts are treated as being 60% long-term gains and 40% short term. A simple way to remember that is this: you get a tax advantage on 60% of your gains since the long-term capital gains rates are less than the ordinary income rates for all income levels.
Who this course is for:
- People Needing To Understand Tax Aspects of The Stock Market