OT: Back Up Your Files

The computer on which I did last year’s taxes crashed while I was trading today.

As it was rebuilding itself, I couldn’t remember whether or where I had backed up my 2021 tax return. I’m pretty sure I had done so in multiple places. But I couldn’t remember, and I suffered an hour of anxiety, because I didn’t want to have to reconstruct the return and the 500 plus trades I had done. (Yeah, I went wild last year. This year, I’ve been doing all of my short-term trades in an IRA to ease the tax filing problem.)

Fortunately, the recovery procedure fixed whatever had caused the problem, whereupon I copied the file and stored it again in multiple places. Likewise, this afternoon, I’ll put all of my other files onto thumb drives, several of them.

Lesson learned: BACK UP YOUR FILES (and back up your backups). RAM is a lot cheaper than your time or peace of mind.


what software do you use to look for wash sales etc? do you do it by hand?
most of my stuff is in cloud at this point and password protected for the tax stuff


I used to do my Fed and state taxes totally by hand, no software at all. If one’s return is fairly simple, that’s a useful discipline, and tax-prep time also becomes a time to do an annual review of one’s total final situation (whose tracking I do in Excel, not Quicken and such, for not liking those programs). As my investing activities increased, using tax-prep software became a necessity. I tried TurboTax, but didn’t like it, and have stuck with TAXCUT Basic instead, because it meets my needs at a price I’m willing to pay.

But here’s a funny story I’ve told before. Maybe 20 years ago, before I retired, I would trade futures a bit in the early morning before heading off to work. That year, IB reported my gross trades to the IRS as gross trades, not as net profits and losses. But when I filed, I netted them and thought I had done the right thing. Mid-summer, I get a letter from the IRS, “You owe us $247k in back taxes.” I knew I didn’t. So I sent them a letter in which I pointed out their mistake with the following example. “If I buy 1,000 shares of a $100 dollar stock at $100.01/share and sell it ten minutes later for $10.02, then my net-gain is $10 bucks, and that’s what I owe taxes on, not on the gross of the money transacted.” But IB had reported both sides of the transaction without netting them. When you’re trading leveraged contracts like futures, the gross amounts quickly become huge, even if you’re just trading for a tick or two.

That letter drew from them this response, "You owe us $524k in back taxes (or whatever the ridiculous amount was). So I went to the local IRS and explained to rep what I had done. He said, “You have to report each transaction as a separate transaction, both sides. You can’t simply net them.” Also, by that time I was heavily into bonds, and I was incurring a lot of BK workouts whose reporting no one in the IRS, not locally, not in the central office, understands how to deal with. “Ah, we aren’t trained to deal with that.”

By now, summer become fall, and fall had become winter. I knew I was right, and I knew no CPA knew more than I did about what the IRS regs were and weren’t concerning bonds. So I spent the month of Jan preparing a revised return that came to 234 pages of documentation. That might sound like a godawful lot of work. But it was a fun thing to do, and I learned a lot about how to read, interpret, and apply tax rules. In fact, as I prepared the revision, I discovered that I really had made a lot of mistakes in my original filing. Sometimes, the mistakes were in their favor. Sometimes, in mine. But the net effect was that I owed them no more money than I had already paid them. (Or so I thought.) So I boxed up the 234 pages and mailed the return to them.

A couple weeks latter, I get another letter from them. “You owe us $23.17 in back taxes.” At that point, I didn’t really know whether I did or didn’t. But I knew when to make a graceful retreat and sent them a check. But my bet is this. No one read those 234 pages. They just pulled a random number out of the air and made a counter-offer they knew I’d accept. My returns have been questioned two more times since then. In all them of them, I had filed an honest, though error-prone return that was easily resolved. So, yeah, I do my own taxes.


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Most Brokerage 1099’s specify wash sales.

I keep a chartlist of sales so that I can consider if I am repurchasing something that would be a wash sales. Not critical, but easy and I try to keep rough track just in case.