Are profits from options trading subject to a FICA tax?

Are profits from trading options (or stocks) in a non-qualified brokerage account subject to the 10.4% FICA tax?

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April 2017
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No, FICA taxes are payroll taxes withheld from employees paychecks and paid by employees and employers for Social Security and Medicare.

There are many different options strategies that are all taxed differently. Whether you are buying or selling puts and/or calls, covered call writing, straddles or any other sophisticated options strategy. For the basic holders of puts and calls:

  • If you buy a put or a call, you may not deduct its cost. It is a capital expenditure.
  • If you sell the put or the call before you exercise it, the difference between its cost and the amount you receive for it is either a long-term or short-term capital gain or loss, depending on how long you held it.
  • If the option expires, its cost is either a long-term or short-term capital loss, depending on your holding period, which ends on the expiration date.
  • If you exercise a call, add it's cost to the basis of the stock you bought.
  • If you exercise a put, reduce your amount realized on the sale of the underlying stock by the cost of the put when figuring your gain or loss.
  • Any gain or loss on the sale of the underlying stock is long term or short term depending on your holding period for the underlying stock.

As always, when making any investment decisions based on the tax consequences of your investment, it is best to consult with your CPA to make certain that all of your personal financial information is taken into account.

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