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    Is there anyway to reduce the ~50% tax bill from short term capital gains from options?

    Curious.

    I have an ITM trade on $CMPS that expires in 01/2027.

    However, they're not LEAPs as it is a ~10 month play.

    Based on my math, the combined taxes on my profits (both federal and state, in CA) seem like it's going to be ~50%, which is nuts.

    Is there anything I can do to minimize the tax rate?

    Also, instead of cashing out this year, I'm thinking about cashing out close to expiration in 01/2027, then rolling the profits into a different play with LEAPs this time – wondering if that's a good move?

    Thanks!

    Is there anyway to reduce the ~50% tax bill from short term capital gains from options?
    byu/TeslasElectricBill inoptions



    Posted by TeslasElectricBill

    8 Comments

    1. FleetAdmiralFader on

      Your marginal tax rate is 50%? Then you make tons of money already. Just pay your taxes.

      The only ways to reduce your tax bill are to realize losses (which doesn’t reduce the tax % on gains just the amount due), make less money, move to a different state, or hold for one year and a day.

      There are perhaps some advanced tax shenanigans that could reduce your marginal rate as well but sounds like that’s not really an option for you.

    2. I_HopeThat_WasFart on

      All you can do is take loses right before EoY realistically. Offset profit.

      Other option is to incorporate your trading but this is very difficult to get the tax designation

    3. hsfinance on

      I have some similar trades and I will do either of the 2

      1. Roll or sell if it dips significantly. My leaps are permanent so I will maintain position on them
      2. Else do it in the new year pushing taxes out by a year. Make sure to cover the safe harbor tax payments

    6. ChairmanMeow1986 on

      I mean besides harvesting losses near years end to re-allocate you have the same options as any high earner, i.e. IRA, HSA (if eligible), a 529 if you have kids, or you could look into a backdoor ROTH. Don’t really know your situation, but short-term cap gains is taxed as ordinary income (treated like earned income in most states I believe).

      There’s like 7 states you could move to I guess to lower the state burden otherwise you just pay your share, there’s a reason buy and hold makes sense for many. I paid 60k between state and federal last year, it is what it is for the most part and something to consider if you are a high earner.

      *Just two quick points, because I’ve been seeing people get this wrong*

      1. LEAPS by definition is at a minimum a year (everything else is just a Call with a long DTE)

      2. Rolling an option involves closing the original and opening a new position and is always a taxable event. If you have a gain and it has not been a year when you roll that will be an immediate taxable event (short-term cap gains), if it’s for a loss it’s a wash sale carried forward (i.e. it’s deferred and you’ll have to completely close that position within the year AND NOT BUY IT BACK for at least 30 days to harvest that loss. It’s common to close out deferred wash sales in Dec and skip opening any in Jan for instance if you frequently trade the same tickers short-term (which includes rolling) throughout the year over and over.

    7. crashbandyh on

      Any method to lower your taxes aside from just holding for a year is just another way to lose money. Just pay the taxes because you’ll lose more money trying to find ways to lower it lol

    8. Regular-Hotel892 on

      Excersize is and hold the shares to long term capital gains is the only way

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