Q: I am not a TAX expert but I thought that any option premium collected today should be claimed in 2023 not 2024. Since income is coming this year not next year.
Q: Good morning 5i
Looked on Google for an answer for this question but couldn’t find anything. If i sell a covered call option today with an expiration date in January, in which the stock is called away, in what year would I pay the capital gains tax, 23 or 24?
Thanks
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Asked by joseph on December 08, 2023
5I RESEARCH ANSWER:
The stock will be sold in 2024, so is taxable in 2024. The options will be closed out in 2024, so the premium is also taxable in 2024 (as a capital gain).
Q: Good morning 5i
Looked on Google for an answer for this question but couldn’t find anything. If i sell a covered call option today with an expiration date in January, in which the stock is called away, in what year would I pay the capital gains tax, 23 or 24?
Thanks
Upvote IconUpvote
3
Add to favourite Icon
Asked by joseph on December 08, 2023
5I RESEARCH ANSWER:
The stock will be sold in 2024, so is taxable in 2024. The options will be closed out in 2024, so the premium is also taxable in 2024 (as a capital gain).
5i Research Answer:
Thank you; the tax treatment depends on what happens. Expired options are taxed in the year sold, but if options are exercised the tax year can be different. This chart should help clarify:
| Option type | Event | Timing of proceeds reported for tax purposes |
| Tax treatment when options are sold: | ||
| Calls | expired | capital gain at time calls are sold |
| bought back to close | capital gain at time calls are sold, and buy-back costs recorded as capital loss at time of buy-back | |
| exercised | capital gain at time of exercise (added to proceeds from sale of shares) | |
| Puts | expired | capital gain at time puts are sold |
| bought back to close | capital gain at time puts are sold, and buy-back costs recorded as capital loss at time of buy-back | |
| exercised | no capital gain: at time of exercise, proceeds are deducted from the cost basis of shares purchased | |
| Tax treatment when options are purchased: | ||
| Calls | expired | capital loss at time of expiry |
| sold to close | net gain or loss on purchase and sale recorded as capital gain or loss at time options sold to close | |
| exercised | no capital loss - at time of exercise, cost is added to cost basis of shares purchased | |