A straddle is an advanced trading strategy that involves holding long and short positions (such as buying both a put and call option) that essentially offset one another. It is typically used to help limit risk when there is speculation that a security will move significantly, but the direction is unclear.
Straddles are subject to certain tax rules that determine the character and timing of gains and losses realized, which can be a concern for mutual funds and hedge funds. These complex tax rules make manual tracking of straddles and their deferred losses tedious and time consuming for fund tax managers, who often spend days making calculations in order to prepare financial statements and tax returns. With its automated straddle tracking functionality, FundTax Pro greatly simplifies this manual effort into a fast, automated process by applying both of the two distinct loss deferral rules and then tracking positions in future periods.
Fund accountants have an added challenge of completing the computations twice a year because loss deferrals are determined on both an excise tax and filing tax year cycleâand the numbers need to be precise. Miscalculations can lead to inaccurate distributions for the fund, as well as penalties from the Internal Revenue Service.
âStraddle rules represent some of the most complex tax rules that apply to investments, and their computations can easily become overwhelming,â said Stevie Conlon, tax director for GainsKeeper. âFundTax Pro saves time and resources, while helping eliminate the potential reconciliation errors that can result from manual calculations.â
âOne of the main reasons GainsKeeper is so widely relied upon by the financial community is that we are constantly working with our clients to determine new ways to make their jobs easier,â said Chuck Ross, GainsKeeperâs general manager. âFund companies and administrators have identified straddles as one of their biggest challenges. FundTax Pro is yet another example of how GainsKeeper is easing the burdens created by complicated tax rules.â
FundTax Pro also includes the same functionality offered by FundTax, a GainsKeeper tool that completes tracking of wash sale deferrals and reversals, holding period carry-overs and basis adjustments.