Help & How To Scottrade Trading Site Tax Information Gain/Loss & Tax Center Setting a Tax Strategy
Gain/Loss & Tax Center
From the Tax Strategy page, you can control which method the application uses to match closing transactions. Once you choose your method, Gain/Loss & Tax Center will automatically update and close your positions based on that setting.
Setting a Tax Strategy
When Scottrade reports your cost basis information for covered positions to the IRS each year, the tax strategy used can potentially have a significant impact on the taxes you owe. That's why Scottrade allows you to choose your tax strategy, either by selecting a default tax strategy or by changing your strategy on a trade-by-trade basis.
For details about the seven available calculation methods and when each can be used, visit Tax Strategies.
Default Tax Strategy
To select the default tax strategy you would like to use for all your orders, click the My Account tab in your account and choose Gain/Loss & Tax Center from the left navigation.
Click the Tax Strategy tab along the top of the Gain/Loss & Tax Center. Using the Sell Method drop-down box, select the tax strategy, also known as the "lot relief method", you would like to use. Then, select the security type for which you would like to use the method you selected. Note that Average Cost can only be used for mutual funds.
Click Go to save your strategy selection. You will see previous strategies you selected and the dates during which they were in effect in the Current Strategies section at the bottom of the page.
Available Default Tax Strategies:
First In, First Out (FIFO)
If you choose FIFO as your tax strategy, the shares you acquire first are the shares that are sold first. This is Scottrade's default tax strategy.
Last In, First Out (LIFO)
If you choose LIFO as your tax strategy, the most recently acquired shares are sold first.
Highest In, First Out (HIFO)
If you choose HIFO as your tax strategy, the shares with the highest cost basis are sold first.
Minimum Taxable Gains (MinTax)
The Minimum Tax strategy sells tax lots in the following order:
1. Largest short-term loss
2. Largest long-term loss
3. Smallest long-term gain
4. Smallest short-term gain
Maximize Taxable Gains (MaxGain)
Maximum Gain reverses the strategy of Minimum Tax, liquidating lots in the following order:
1. Largest short-term gains
2. Largest long-term gains
3. Smallest long-term losses
4. Smallest short-term losses
Average Cost (Avg Cost)
Average cost uses the average cost basis of your tax lots for a particular security and uses that number for the calculation of gains and losses. The average is calculated by aggregating the cost basis of tax lots of identical shares and dividing by the total number of those shares. The averages for covered and non-covered shares will be maintained independently. Average cost can only be used for funds at Scottrade.
Trade-Specific Tax Strategy
If you'd like to select a tax strategy for a particular trade that is different than default tax strategy you've chosen, you can do so in the Gain/Loss & Tax Center.
Mouse over the Activity tab at the top, and left click on Raw Trades. You can locate a particular sell order by using the search tool at the top to find a particular symbol, or simply find the order in the Raw Trades list provided. Sorting the activity by clicking the Date column heading can also be useful.
When you've located the order, mouse over the orange arrow to the right of the transaction information and click the Details link. You'll see further trade details come up, along with a drop-down box specifying your Current Sell Method. Note that the Current Sell Method drop-down will only appear on unsettled trades for which you are able to specify a tax strategy. You can choose from any of the available strategies, including Versus Purchase, or VsPurchase. VsPurchase is a means of matching a particular tax lot (generally a purchase) against your closing transaction (generally a sell).
If you select VsPurchase, you'll see all of your available lots of that security. To select the shares of each lot to be applied to your current order, enter the number of shares you would like to designate into the Quantity to Apply (Qty to Apply) field to the right of the lot in question. The tool will calculate the Cost to Apply each of the lots you choose.
When you're finished, click Save.
Your tax strategy can only be changed from the day following the trade execution up to and including the settlement date. After the settlement date, you cannot make any changes to the calculation method used for that particular trade. If you do not make a selection, Scottrade will use FIFO (first in, first out) to calculate your gains and losses.
For more information about the cost basis information Scottrade is required to report to the IRS, visit the Cost Basis FAQ.
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