Can someone explain how Wash Sales work with stock trading? I'm completely lost

Thanks for explaining! But what counts as "substantially identical"? Would options on the same stock trigger a wash sale? Like if I sold AAPL shares at a loss and then bought AAPL call options within 30 days?

Yes, options on the same stock can trigger wash sales. The IRS considers options and the underlying stock to be "substantially identical." So if you sell AAPL shares at a loss and buy AAPL call options within 30 days, that would trigger a wash sale. The definition of "substantially identical" isn't perfectly clear in all cases, but it generally includes the same company's stock, options on that stock, and in some cases, very similar ETFs or mutual funds with nearly identical holdings. Different companies in the same sector (like selling MSFT and buying AAPL) would not trigger a wash sale.

Does it work with other brokerages too? I use TD Ameritrade and Robinhood and I'm worried I might have wash sale issues across both platforms.

How accurate is it though? I've heard some tax software gets wash sales wrong, especially with options. Does it handle the "substantially identical" rule correctly?

Yes, it works with all major brokerages including TD Ameritrade and Robinhood! You can actually link multiple accounts to catch wash sales that happen across different platforms, which is super important since the IRS looks at all your accounts together. It's extremely accurate with wash sales, even with options trading. Their algorithm properly identifies "substantially identical" securities including the relationship between stocks and their options. It even flags potentially problematic trades before you make them so you can avoid creating wash sales in the first place.

Wait, how does this actually work? Sounds sketchy honestly. Does it just auto-dial the IRS for you or something? Why would that be any faster than calling directly?

I'm extremely skeptical. The IRS phone system is intentionally understaffed and overloaded. There's no "secret backdoor" to get through. Sounds like a scam to charge money for something that won't work.

It's not auto-dialing. From what I understand, they have a system that navigates the IRS phone tree and waits on hold for you, then alerts you when an actual agent is about to come on the line. It's completely legitimate - they don't ask for any personal tax info and they don't interact with the IRS agent at all. It works because they've figured out the best times to call and the optimal way to navigate the phone system. They're basically professional "wait on hold" people who know the system inside and out. I was skeptical too until I tried it and actually got through when I'd been getting disconnected for days.

Is there any waiting period for gains? Like could I sell TSLA at a $500 gain today and rebuy immediately tomorrow without any issues?

Nope, there's no waiting period for gains! You can sell TSLA at a $500 gain and literally buy it back seconds later if you want. The wash sale rule only applies to losses, not gains. The reason is that the IRS is mainly concerned with preventing you from artificially creating tax losses while maintaining essentially the same investment position. They have no problem with you paying taxes on gains, so there's no restriction on rebuying after selling at a profit.

This is actually a really important question! Wash sales that happen at year-end need special attention. If you sell at a loss in December and then buy back in January (within 30 days), that creates a wash sale that spans tax years. The loss doesn't disappear, but it gets added to the cost basis of your new shares purchased in January - which means you can't claim the loss on this year's taxes. You won't realize that benefit until you eventually sell those January shares (potentially next tax year or beyond). This is why some traders do "year-end tax planning" and avoid rebuying securities they've sold at a loss in December until after the 30-day window has passed.