Option Trading Tax Question: How Does Buy to Open, Sell to Close Impact My Taxes?

Hey all, I'm getting more serious about my options trading for 2025 and realized I have no clue how the taxes work. Most of my trades are simple "buy to open, sell to close" on calls and puts. I made around $15,700 in profits this year through my brokerage account (Fidelity). My main questions are: 1) Are these considered short-term capital gains if I hold options for less than a year? 2) I've heard different things about how "buy to open, sell to close" is reported on taxes vs more complex strategies. 3) Does my broker send some tax form that makes this easy, or do I need to track everything myself? 4) Is there a certain threshold where I need to start paying quarterly estimated taxes? I'm totally new to options tax implications and want to make sure I'm prepared when tax season rolls around. Thanks for any help!

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18 comments

Isabella Tucker

•8M

Options trading taxes can be straightforward once you understand the basics. For your "buy to open, sell to close" scenario, these are indeed considered capital gains transactions. 1) Yes, if you hold the options for less than a year before closing the position, all profits are taxed as short-term capital gains (essentially at your ordinary income tax rate). If you hold for more than a year (rare with options), they'd be long-term capital gains with lower rates. 2) "Buy to open, sell to close" is the simplest scenario for tax purposes. Your broker will report these as regular capital transactions. More complex strategies like spreads or straddles have different reporting requirements, but you don't need to worry about those yet. 3) Your broker will send you a Form 1099-B by February showing your trades, but don't rely solely on this. Maintain your own records because brokers sometimes make errors or don't have all the information needed for proper tax treatment. 4) If you expect to owe more than $1,000 in taxes at filing time, you should consider making quarterly estimated tax payments to avoid an underpayment penalty. This would apply if your withholding from other income sources isn't sufficient to cover the additional tax from your trading profits.

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Isabella Tucker

•8M

Yes, wash sale rules absolutely apply to options trading, and they can get tricky. If you sell an option at a loss and then buy a "substantially identical" security within 30 days before or after the sale, the loss is disallowed for tax purposes. For your AAPL example, it depends on the specifics. Different strike prices or expiration dates might be considered "substantially identical" if they're close enough. The IRS isn't crystal clear on this, but the conservative approach is to assume different options on the same underlying stock could trigger wash sale rules if traded within that 30-day window.

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LordCommander

•8M

After struggling with option trading taxes last year and getting conflicting advice from friends, I found this amazing tool called taxr.ai (https://taxr.ai) that saved me hours of headache. It specifically helped with my options trading by analyzing all my transactions and identifying which ones were short-term vs long-term gains. It even flagged potential wash sales that I completely missed! The system lets you upload your trading statements directly, then categorizes everything properly for tax reporting. What's cool is it actually explains the tax implications in plain English. For my "buy to open, sell to close" trades, it showed exactly how they should be reported on Schedule D and Form 8949. Definitely worth checking out if you're doing regular options trading.

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LordCommander

•8M

It handles complex strategies really well. For iron condors and butterfly spreads, it recognizes the combined legs of the trade and calculates the proper tax treatment. It even identifies which ones might qualify for Section 1256 contracts treatment if applicable, which can give you a better tax rate (60% long-term/40% short-term split regardless of holding period). For Fidelity integration, you can either connect directly through their secure API or upload your statements. If you have hundreds of trades, the direct connection is definitely the way to go - it pulls everything automatically and categorizes them. No manual entry needed which is a huge time saver, especially with options where the details really matter for tax purposes.

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Aidan Hudson

•8M

Just wanted to follow up about taxr.ai that was mentioned earlier. I was skeptical but decided to try it with my mess of options trades from 2024. Wow - it actually worked amazing! I connected my Fidelity account and it imported all 300+ trades automatically, correctly identified my buy-to-open/sell-to-close patterns, and even flagged a bunch of wash sales I had no idea about. The tax summary it generated showed me exactly what I'll owe on my short-term gains and how the losses offset some of it. This would have taken me days to figure out manually. Even shows the exact forms where everything goes. Just wanted to share since it actually delivered what was promised.

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Zoe Wang

•8M

If you're having trouble getting answers from the IRS about options trading tax questions (and who isn't), I've been using Claimyr (https://claimyr.com) to actually get through to them. Regular options trading doesn't usually need special IRS guidance, but when I had questions about wash sale rules for options specifically, I couldn't get anyone on the phone for weeks. Claimyr got me connected to an actual IRS agent in about 15 minutes when I'd been trying for days. They have this demo video showing how it works: https://youtu.be/_kiP6q8DX5c The agent was able to confirm exactly how my "buy to open, sell to close" trades should be reported and what documentation I needed to keep. Apparently options traders get flagged for audits more often because reporting can be inconsistent, so getting official guidance gave me peace of mind.

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Zoe Wang

•8M

It absolutely gets you through to the IRS. It works by using their callback technology on your behalf. When you call through their system, they keep dialing and navigating the IRS phone tree until they secure a spot in the callback queue, then they transfer the call to you when an agent is about to come on the line. I don't want to get into specific costs since they might change, but I can tell you that for me, it was worth every penny considering I was trying to get clarity on how certain options strategies are taxed. The time I saved not sitting on hold for hours was valuable, especially during tax season when everyone's trying to call. It's definitely not snake oil - it's just smart use of technology to navigate their system efficiently. If you watch their demo video you can see exactly how it works. I was skeptical too until I tried it and was talking to an actual IRS agent within minutes.

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Grace Durand

•8M

I need to eat my words about Claimyr from my earlier comment. After struggling for another two weeks trying to get through to the IRS about how to report my options trades correctly, I broke down and tried it. I was connected to an IRS representative in about 20 minutes! The agent walked me through exactly how to report my buy-to-open/sell-to-close transactions and confirmed my broker's 1099-B wouldn't capture all the necessary details. She even explained which specific boxes to check on Form 8949 for options transactions. This saved me from potentially misreporting my options trades, which could have triggered an audit. For anyone trading options regularly and needing tax guidance straight from the IRS, having a way to actually talk to someone is invaluable. I'm genuinely surprised and impressed.

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Steven Adams

•8M

You're absolutely right about the limitations. In an IRA, you generally can't sell naked calls or puts because they have undefined risk and require margin. Most brokers only allow covered calls, cash-secured puts, and certain defined-risk strategies like vertical spreads. The exact permissions depend on your broker and your approved option level within the IRA. Fidelity, for example, is pretty conservative and might restrict you to just covered calls, while some others allow vertical spreads if you have enough experience and account value.

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