Irrespective of that you might (or are even likely to) get away with, I wouldn’t be sure about the legality of your non-reporting of transactions.
The Wertschriftenverzeichnis has columns for the dates that you bought and sold items.
You sign it, declaring to give complete and truthful information.
If there is a taxable event (such as distribution of a dividend) on one of your securities, you have to declare, even if you sold it before the end of the year.
Also, the fact (which we’ve discussed on the forum a couple of times) that it’s up to the tax authority to classify you as a professional trader (or not) leads me to believe that these transactions might indeed be declared. Or that that’s what the tax authority might argue, if they’re going after you.
By not declaring, you’re basically knowingly withholding information from them to assess you correctly (which you very well might get away with, sure).
I think San_Francisco is right and this transactions need to be declared. I’d like to add that you should declare tax free capital gains anyway, because it increases your net worth and if this can’t be explained with your income they will investigate the issue.
Please also be aware that the reporting could change anytime in the future and this could get you in trouble even years later. Worst case would be you have to pay taxes and fines later when you don’t have the money.
If you think you can get away with it you can look up the story of Uli Hoeness. At the time of his tax fraud Swiss banks didn’t report his transactions to Germany, but we all know things changed later.
If your gains are tax free I don’t see the point in not reporting it. If your gains are not tax free and you are not reporting it… well wouldn’t be worth the risk for me.
As a German I think Swiss taxes are really fair.
I just checked on the instructions for the declaration in Ticino and this is what’s written:
Per la dichiarazione dei redditi da titoli e capitali sono da considerare le seguenti indicazioni: […]
f) in relazione alle obbligazioni a interesse globale e ai zero-bonds come pure per altri
derivati finanziari è da dichiarare il totale degli interessi alla loro scadenza oppure l’interesse al momento della loro vendita.
Which translates into:
The following must be considered for the declaration of income from shares and capital: […]
f) in relation to deep-discount* bonds, zero-bonds and other financial derivatives, it must be declared the total of interests at expiry or when sold.
Options (Opzioni) is also one of the choices in the tax software…
I wanted to give it a try next year but I’m not sure anymore.
*I’m not 100% sure about the translation of “obbligazioni a interesse globale”
You guys are right. Withholding does not really work. Cap gains are tax free anyway, unless they qualify me as professional trader. But I heard this happens rarely in Zurich, unless you make more money trading than earning otherwise.
And as SanFrancisco says, you have to enter your stocks in the Wertschriftenverzeichnis in order to correctly report the dividends collected (which applies for me, since I exploit dividend capture / early assignment strategy from time to time), and also to claim back the 15% with the DA-1 form (which happens automatically in ZH Tax)
I am still trying to figure out how to report my activities in the easiest way for the tax office though.
I fear they would not understand the full report generated from IB, nor the complex positions. Its basically a mess.
Additionally, I dont want to enter every transaction manually into the Wertschriftenverzeichnis.
Problem 1 is that ZH Tax online automatically captures stock price when you enter the time you bought the stock.However, this price is never correct since I write ITM Covered Calls, which lowers my purchase price significantly.
Problem 2 is if stock is not assigned, or called early.
I thought of just creating a specific report showing all dividends and profits from every CC transaction, and attaching that one to my physical tax declaration.
The tax memo 15 confirms that option premiums are, in principle, irrelevant with respect to the income tax.
I premi di opzione sono in linea di principio irrilevanti ai fini dell’imposta sul reddito.
I wonder if selling puts on securities that you own is considered as hedging and doesn’t trigger the professional investor criteria below or if this is valid only for buying puts. But why writing a memo saying that premiums are not relevant for income tax if you can’t sell them?
If you invest using derivatives – and options in particular – these can only be used to hedge your own securities.
dear LeStache
thank you for your exhaustive reports. I would also like to experiment with options as a mean to generate income on shares I already own. I wonder, however, how profitable this is .
Could you share what yield approximately a premium on a covered call could generate? is it possible to indicate it approximately as a function of the stock price, the period chosen and the level of the strike price over current share price? just a range of min / max would really help
Sure, I was actually considering doing this for a while now. Here are some of my closed trades from last year when I was slowly getting into the topic. I always aim for at least 100% annualized profit when I’m opening the trade. I usually close the trade early if I have reached somewhere between 50-65% of the max profit. That’s why the following table has some variance in the Days Held column. If volatility moved the price to my advantage, I closed the trade. I believe the table illustrates nicely how closing early can be very efficient in terms of annualized profit. All amounts are in USD.
Stock Symbol
Open Date
Exp Date
Call or Put
B/S
Stock Price DOC
Break Even Price
Strike Price
Premium
Contracts
(Put) Cash Reserve
Fees
Exit Price
Close Date
Profit/Loss
Days Held
Annualized ROR for Options
GME
06.10.2020
16.10.2020
Put
S
9.55
8.7
9
0.3
1
900
1.87
0.05
09.10.2020
23.13
3
312.68%
GME
09.10.2020
20.11.2020
Put
S
13
9
10
1
1
1000
2.17
0.35
05.11.2020
62.83
27
84.94%
GME
06.11.2020
18.12.2020
Put
S
11.95
8.8
10
1.2
1
1000
1.87
0.4
27.11.2020
78.13
21
135.80%
GME
27.11.2020
18.12.2020
Put
S
15.94
12.25
14
1.75
1
1400
1.75
0.65
15.12.2020
108.25
18
156.79%
PLTR
30.11.2020
18.12.2020
Call
S
27.2
32.1
28
4.1
1
---------
2.17
0.2
16.12.2020
387.83
16
315.98%
GME
04.01.2021
15.01.2021
Put
S
17.85
15.48
17
1.52
1
1700
2.17
0.4
11.01.2021
109.83
7
336.87%
As you can see the absolute amounts are not great, I was dealing with affordable stock and only one contract at a time. I was still happy at the returns. This year I have increased the absolute amounts and slowly ventured into more expensive stock. Another noteworthy point is that all of my picks are really volatile. If you own something stable that’s going sideways like Coca Cola, you may not get enough premium from the covered calls.
I usually start by selling a put so there’s only one covered call (PLTR) in this list. The profit from the CCs greatly depends on where you are willing to set the strike price. As I’ve learned this year, if the shares are at risk of being called away, you really need to be able to let go of them. This can be hard if the price rises rapidly because the call limits your upside.
Hello… This looks encouraging and I agree with the logic you followed: going for volatile stocks but limiting the exposure. From a ROI % the results you obtained are beyond my initial assumptions.
i really appreciate your help, thanks of sharing
I am considering selling some puts and after reading the whole post, I still haven’t really understood whether the premium you receive is tax-free or not.
Is there a straight-forward answer or does it always depend on the specific tax-office?
I live in canton Zurich if that makes a difference…
IMO there is not straightforward answer, since selling put options is way outside of the realm of personal investing and wealth management. Still, it’s not as if the tax will want to tax each and every (or your first) YOLO options play.
I am just trying to understand the number 5 of the list of criteria for being considered a private (thus, non-professional investor): The purchase and sale of derivatives (in particular options) is limited to the hedging of the taxpayer’s securities positions.
I dont understand whether this “hedging of the taxpayer’s securities positions” means simply that is allowed to sell/buy options.
Buying put options to limit the downside risk of securities you own should certainly be covered by that criterion.
I don’t know whether any other option strategies would also be acceptable. I expect selling put options to violate that criterion as that doesn’t hedge any existing positions.
Forgive me if I’m not following but I don’t understand the talk about hedging for this particular situation. Selling puts, you get a premium. That would be income, not capital gains, and, as such, taxed as income.
Now, buying options (whether calls or puts) would be buying an asset that can appreciate (as well as loose value). That appreciation, if it happened, would be capital gains which may or may not be taxed depending on how the tax office classifies @stra, as a professional investor or not.
Now, in case selling puts makes the tax office classify @stra as a professional trader, which it may (though I’d consider it unlikely if the amount is not really significant vis-à-vis other sources of income), then other capital gains would also be taxed. But the premium coming from selling puts would be taxed anyway, regardless of how the tax office classifies the seller.
Les primes d’option n’ont en principe pas d’incidence en matière d’impôt sur le revenu. Ceci est aussi valable pour les primes d’option, qu’un vendeur/souscripteur des options reçoit dans le cadre d’un produit combiné.
So no, unless you are considered professional option premiums are tax free, no income tax is levied.
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