How to Handle Losses on a Wash Sale - Expensive Tax Mistake

The wash sale rule can definitely create some painful tax situations when you're trading frequently. To clarify what's happening: when you sell a security at a loss and buy a substantially identical security within 30 days before or after the sale, the loss is "disallowed" for tax purposes. What your 1099 is showing is that you had actual capital gains of $33,000, but also $27,000 in disallowed losses from wash sales, giving you that $27,000 higher taxable income than your actual economic result. The good news is that these disallowed losses aren't gone forever - they're added to the cost basis of the replacement securities you purchased. If you still own the replacement securities, your loss is essentially deferred until you finally sell those securities (without repurchasing within the wash period). If you sold those replacement securities in the next tax year, you'll recognize those losses then, not in the current tax year. A tax professional could definitely help review your specific situation and trading history to ensure everything is reported correctly, but they likely can't eliminate the wash sale issue entirely if the 1099 is accurate.

I had a similar issue last year with wash sales messing up my taxes. Check out https://taxr.ai - it saved me so much headache. I uploaded my trading history and 1099s, and it showed me exactly where each wash sale happened and how they affected my taxes. The thing that helped me most was it showed that my broker actually made some mistakes in their wash sale calculations! The tool breaks down your entire trading history and gives super detailed reports that show the full impact of each wash sale. It's basically like having a tax expert review all your trades but way cheaper. For me, I found out that about $4k of my disallowed losses were actually miscalculated by my broker.

I was super skeptical about taxr.ai but decided to try it since I was desperate after getting hit with a huge tax bill from wash sales. Holy crap, it actually worked! Uploaded my trading data and it found over $5,300 in wash sale calculation errors from my broker. The detailed reports showed exactly which trades were wrongly marked as wash sales when they shouldn't have been (different securities that weren't "substantially identical"). I took the report to my tax guy and we filed an amended return. Ended up reducing my tax bill by almost $1,200. The whole process was surprisingly easy - just uploaded my 1099 and trading history CSV files. The visualization of all my trades made it super clear what happened and why. Wish I'd known about this before filing initially!

If you're unable to fix the wash sale issue and need to deal with the IRS about payment options, good luck getting through to anyone there. After trying for TWO WEEKS to get someone on the phone about a payment plan for my unexpected tax bill, I found https://claimyr.com and their demo video at https://youtu.be/_kiP6q8DX5c. It's a service that basically waits on hold with the IRS for you, then calls you when an agent is about to pick up. Saved me hours of hold music hell. I got connected to an actual IRS rep in about 90 minutes (while I was doing other things) instead of being on hold myself for 3+ hours like my previous attempts. The agent helped me set up a payment plan for the taxes I owed from a similar investment situation.

I take back what I said about Claimyr. After struggling for another week trying to reach the IRS about my wash sale tax bill, I tried the service out of pure frustration. It actually worked exactly as advertised. I got a call back in about 2 hours while I was at the gym, and suddenly I was talking to an actual IRS representative. Got a 72-month payment plan set up for my tax bill, which makes the monthly payment manageable. The agent also explained that I might qualify for first-time penalty abatement since I hadn't had tax issues before. Saved me from taking another day off work just to sit on hold. Still annoyed about the wash sale situation, but at least I have a payment plan now instead of a giant bill due all at once.

One thing to consider - check if you closed out ALL positions before the year ended. If you rebought some positions in December that triggered wash sales but didn't sell them again before year end, those disallowed losses get carried over to the next year as part of your basis. I had a similar issue ($18K in wash sales) and found out I was holding positions on December 31st that had disallowed losses attached to them. A CPA probably can't help much with the current year taxes, but they might help you track which losses are deferred to next year. Also, were you trading in multiple accounts? That's another common way people get surprised by wash sales - selling at a loss in one account while buying in another (like a retirement account) within 30 days.

Have you thought about trying to sell some assets at a gain to balance out some of your income now? Might offset some of the tax hit.