Tax Implications of Straddles
G2 FinTech, provider of tax analysis and regulatory compliance software for the investment management community, has today announced the publication of a new white paper, Tax Implications of Straddles (Straddles). The latest in a series, this resource discusses two issues that are integral to capital gains calculations: (1) how to calculate taxable gains and losses for straddles transactions, per Section 1092 of the tax code, and (2) how to account for the effects of other taxable events, such as wash sales, on straddles and vice versa. Designed to help firms produce accurate IRS and investor reports, this paper is of particular interest to both fund administrators providing end-of-year tax services and to hedge funds running tax-aware strategies.
This groundbreaking paper specifically focuses on “basic” and “identified” straddles, and employs a fresh, new vocabulary to discuss Section 1092, a complex section of the tax code. With clear examples, G2 FinTech’s paper presents practical applications of Section 1092 as related to cost basis and holding period adjustments and the basic elements involved in calculating disallowed losses. In addition, Straddles addresses “interweaving,” a key concept behind comprehensive tax analyses that looks at the interaction between different sections of the tax code. In particular, Straddles discusses the interplay between Section 1092 (straddles) and Sections 1091 (wash sales), 1233 (short sales) and 1259 (constructive sales), and how that relationship ultimately impacts capital gains calculations.
“In order to run accurate and audit-ready tax analyses, firms need to understand how straddles gains and losses affect wash sale calculations,” says George Michaels, CEO, G2 FinTech. He adds, “This involves complicated calculations that take into account numerous interdependencies. We hope this white paper will serve as a useful guide on how to tackle this complex process and handle these interrelated taxable events.”