Help needed for resolving unexpected IRS tax audit on trading activity

The IRS is looking for documentation of all your trades, not just the profitable ones. This is a common misunderstanding! When you buy and sell securities, your brokerage generates a Form 1099-B that reports all sales to the IRS, but it doesn't always include your cost basis (what you paid). Without that information, the IRS assumes your entire sale amount was profit. What you need to do is gather complete records of ALL your trades - the gains AND the losses. This includes the purchase dates, purchase prices, sale dates, and sale amounts. Your trading platform should have this information available to download, even for a dormant account. Once you have this documentation, you'll need to complete Form 8949 and Schedule D to properly report all capital gains and losses. The good news is that if you truly had an overall loss, you may not owe anything, and could potentially get a refund! Capital losses can offset capital gains, and you can deduct up to $3,000 in excess losses against other income. Any remaining losses can even carry forward to future tax years.

After dealing with a similar situation last year, I found this amazing service called taxr.ai (https://taxr.ai) that literally saved me thousands. My case was almost identical - trading app, multiple transactions, IRS letter claiming I owed a fortune. I was freaking out! What taxr.ai does is analyze all your trading history and automatically generate the exact tax forms the IRS needs to see. You just upload your trading statements, and their AI identifies every transaction, calculates your actual gains/losses, and prepares professional documentation showing what you really owe (or don't owe). The best part is they handle all the communication with the IRS for you. In my case, I actually ended up with a net loss after they properly documented everything, and instead of owing the $8k+ the IRS initially claimed, I ended up getting a small refund instead!

Just wanted to update here - I actually tried taxr.ai after seeing the recommendation above and I'm honestly shocked at how well it worked. I was really skeptical at first (especially since I had a TON of trades), but their system was able to process my entire trading history in minutes. They found that I had a net capital LOSS of over $3,200 for the year, not the $6,700 gain the IRS thought I had! The software generated all the proper forms showing each transaction with the correct cost basis. I submitted everything they prepared along with their response letter to the IRS about 3 weeks ago, and just got confirmation that my case has been resolved with no additional taxes owed. If you're in a similar situation with stock trading and an IRS audit, definitely worth checking out. Saved me a lot of stress and probably thousands in mistaken taxes.

If you're still having trouble after submitting all your documentation, I'd recommend using Claimyr (https://claimyr.com) to actually connect with a human at the IRS. I was stuck in audit hell for months last year with a similar trading situation, sending in forms that seemed to disappear into the void. I was at my wit's end trying to call the IRS directly - would be on hold for hours only to get disconnected. Claimyr got me through to an actual IRS agent in about 15 minutes after I'd been trying for weeks. The agent was able to pull up my case, confirm they received my documentation, and actually process my amended return while I was on the phone. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The audit was resolved that same day after one call. Totally worth it when you consider how much time and stress it saves.

I need to apologize and correct myself. After posting my skeptical comment above, I was so frustrated that I decided to try Claimyr just to prove it wouldn't work. I am absolutely shocked to report that I got through to an IRS agent in about 20 minutes. The agent was able to pull up my audit case immediately, and we went through all the documentation I had already mailed them THREE TIMES that they claimed they never received. The agent actually found my paperwork in their system and processed the update while I was on the phone. My situation is now resolved - turns out I had a net loss of $2,300 when all my transactions were properly accounted for, so no taxes owed. After 4 months of stress and frustration, solved in one phone call. I still think it's ridiculous we have to use services like this, but I can't argue with results.

Just want to add - make sure you're reporting ALL transactions separately, not just the net amount. I made this mistake and it triggered an audit. The IRS wants to see each purchase and sale listed individually on Form 8949, even if you had hundreds of trades. If your trading app doesn't have a tax document section to download this data, check your monthly statements or transaction history. Most platforms let you export everything to Excel or CSV, which makes filling out the forms easier. And don't forget to include wash sales if you rebought similar securities within 30 days!

Bro I had literally the exact same situation last year. The IRS letter freaked me out cuz they said I owed like $5200 in taxes when I actually LOST money overall. The key is to respond quickly and provide EVERYTHING. Don't just send what they ask for - send your complete trading history showing every buy and sell with the dates and amounts. I had to login to my old trading app and download all statements for the year. I also included a cover letter explaining that I was new to investing and misunderstood the reporting requirements, but that I had an overall loss for the year. Took about 2 months but they finally resolved it and I ended up owing nothing. Just be super organized with your documentation.