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Tax Tips for Active Traders in a Hot Economy: 2025 Gains, Losses, and Wash Sales

UUnknown

2026-02-06

10 min read

Active traders and crypto investors: reconcile 1099s, track wash sales across accounts, and prepare for possible crypto wash-sale rules—get our checklist.

Tax Tips for Active Traders in a Hot Economy: 2025 Gains, Losses, and Wash Sales

Hook: You traded like a pro in a surprisingly strong 2025 market — bigger gains, heavier volume, and lots of wash-sale risk. Now the filing season looms and the noise from mismatched 1099s, scattered crypto records, and complex wash-sale traps is making real decisions harder. This guide distills what active traders and crypto-first investors must do now to reduce audits, save taxes, and keep trading without surprises.

Why this matters in 2026

Late 2025 closed with unusually high retail and institutional activity, and early 2026 shows that momentum continuing. Brokerage platforms and digital-asset exchanges issued more 1099 reports than in prior years, and tax authorities increased scrutiny of high-frequency trading and crypto reporting. That combination produces immediate filing risks:

Mismatched cost basis between your records and broker 1099-Bs
Undetected cross-account wash sales
Unreported crypto income (airdrops, staking, forks)
Higher audit risk when active trading generates large short-term gains

Top-line actions before you file

Start here — quick wins that reduce the largest risks. Do these first, then move into deeper accounting choices like mark-to-market elections.

Reconcile every 1099 (1099-B, 1099-MISC/NEC, 1099-K) to your trade blotter and crypto export.
Build a single canonical record of trades, deposits/withdrawals, and income for all brokerages and wallets.
Identify short-term vs. long-term mixes — short-term gains taxed as ordinary income; long-term benefits often matter more in a high-return year.
Check wash-sale flags for all taxable accounts and across accounts you control.
Consult a trader-friendly CPA if you transacted in the thousands of lots or if you plan to elect mark-to-market accounting.

Wash sale rules — what active traders must know

Key idea: A wash sale disallows a loss when you sell a security at a loss and buy a “substantially identical” security within the 30-day window before or after the sale. The disallowed loss is added to the cost basis of the replacement position, postponing loss recognition.

Practical implications for high-frequency stock traders

Wash-sale windows are 61 days total (30 days before, day of sale, 30 days after).
Options trades can trigger wash sales — both long options and some option strategies create substantially identical positions.
Wash-sale rules apply across all taxable accounts you control (individual, joint, trust) even if brokers don’t coordinate reporting.
Broker-reported wash sales may be incomplete; the IRS holds the taxpayer responsible.

Common traps and how to avoid them

Rebuying an ETF that tracks the same index: ETFs that appear identical may be treated as substantially identical by the IRS in certain cases. When harvesting losses, consider alternatives (different ETF or mutual fund) to retain market exposure without triggering wash-sale rules.
Trading across multiple brokers: If you sell at a loss in Broker A and buy through Broker B within the 30-day window, the wash sale still applies — track trades centrally.
Dividend reinvestment plans (DRIPs) automatically repurchasing shares can trigger wash sales — monitor DRIP purchases inside the 30-day window.

Rule of thumb: if you cannot prove the replacement is not substantially identical and it was within the 61‑day window, assume it could be a wash sale.

Where crypto stands: wash sale uncertainty and legislative risk

Current landscape (as of Jan 2026): Under long-standing IRS guidance, cryptocurrencies are taxed as property. Historically, the wash-sale rule under IRC Section 1091 has applied to “stocks and securities” — and not explicitly to cryptocurrency. That led many active crypto traders to realize losses without wash-sale adjustments.

2025 developments: Heightened attention from Congress and the IRS on digital-asset tax gaps produced legislative proposals in 2025 aimed at closing the crypto wash-sale loophole. Several bills and agency statements signaled intent to treat digital assets more like securities for tax enforcement, though full statutory change requires congressional action.

Actionable guidance for crypto traders:

Do not assume wash-sale immunity forever. Given 2025 momentum, rule changes — retroactive or prospective — are possible.
Keep comprehensive on-chain and off-chain records: timestamps, transaction IDs, fair market values at receipt/transfer, and wallet addresses.
Use specific lot identification whenever feasible to manage gains/losses precisely.
If you habitually engage in round-trip crypto trades to harvest losses, document the economic intent and maintain conservative posture against possible future rule changes.

Mark-to-market (Section 475(f)) election — an advanced strategy

What mark-to-market (MTM) does: If you qualify and timely elect Section 475(f), your trading positions are treated as sold at fair market value at year end. Gains and losses are ordinary, not capital — eliminating wash-sale complications and allowing ordinary loss treatment.

When MTM helps

Extremely high turnover with many wash-sale adjustments that complicate accounting.
When you want ordinary loss treatment to offset ordinary income in a big gain year.
When you want to simplify year-end accounting for brokerage and loan positions.

When MTM hurts

Ordinary-tax treatment may raise your marginal tax burden compared to capital gains rates on long-term gains.
Making the election is generally irrevocable without IRS permission; think multi-year horizon.
MTM can complicate state tax filings where rules differ.

Practical steps: Evaluate MTM with a CPA who specializes in trader taxation. Run a before-and-after projection showing how ordinary loss treatment, removed wash-sales, and baseline capital gains tax rates change net tax.

1099 issues: reconcile, dispute, and document

2025 saw platforms produce more 1099s and more types (1099-B, 1099-K, 1099-NEC-like statements from some exchanges). That increased mismatches and taxpayer disputes. Treat every 1099 as a starting point — not the final word.

Checklist to reconcile broker and exchange forms

Match trade-level activity on the 1099-B to your trade blotter: check date of trade, sales proceeds, and cost basis.
Inspect boxes: Box 1e (cost basis reported) vs missing/basis reported as zero. If basis is missing, you must report correct basis on Form 8949.
Review short-term vs long-term classifications; broker errors are common for lots held across year-ends.
For 1099-Ks from payment processors and some exchanges, confirm whether the amounts represent gross proceeds, which could duplicate sales reported on 1099-B.
Keep correspondence and dispute logs with the broker/exchange if you request corrected 1099s.

How to handle inaccurate or missing 1099s

Document your attempt to obtain corrected forms — this helps if the IRS questions your return.
Report correct figures on Form 8949 and Schedule D even if the broker won’t correct their 1099; attach an explanation if needed.
For crypto exchanges with limited reporting history, export CSVs and on-chain proofs to establish your basis and proceeds.

Record-keeping best practices for active traders and crypto investors

Good records are the difference between keeping money and giving it to the IRS. For active accounts you cannot rely on year-end 1099s alone.

Essential records to maintain

Trade blotter with timestamps, order types, number of shares/units, price, commissions, and fills.
Trade confirmations and monthly statements (download PDFs routinely — do not rely on broker retention periods).
Crypto transaction history: wallet addresses, transaction hashes, receipts showing USD value at time of receipt, and records for on-chain fees.
Records of deposits/withdrawals between wallets and exchanges to prove transfers (non-taxable) vs sales (taxable).
Records for income events: airdrops, staking rewards, mining receipts — record fair market value at receipt. If you operate hardware miners, consider documenting receipts and costs alongside references such as mini miner kits.
Documentation of corporate actions: splits, spin-offs, mergers, and tender offers.

Systems and tools

Use trade-aggregation software (a professional-grade blotter) or an advanced tax platform to centralize lots.
Use crypto tax software that supports on-chain imports and multiple exchange APIs — automated lot-matching saves hours and reduces errors.
Back up raw data: export monthly CSVs and PDFs, and store copies off-site or in immutable cloud storage (consider modern data fabrics and resilient archival services).
Adopt consistent lot identification: FIFO is common, but Specific Identification often helps active traders reduce taxes; document the method and use it consistently. If you need bespoke tooling to track lots across accounts, consider building small internal systems described in pieces like micro‑apps for trade tracking.

Year-end strategies for 2025 gains and a hot 2026 outlook

Given strong 2025 returns and continuing volatility into 2026, use these near-term tactics to manage taxes and preserve optionality:

Targeted tax-loss harvesting: Offset short-term gains first, then long-term. Replace exposures with non‑substantially-identical instruments to maintain market exposure.
Defer income where possible: When you can control timing (e.g., crypto staking payouts scheduled, bonus/consulting income), delay to 2027 if you expect lower rates or offsets next year.
Donate appreciated shares: For large gains, transfer long-term appreciated equities to charity to avoid capital gains and get a charitable deduction.
Consider Roth conversions cautiously: In a high-income year driven by trading profits, conversions may be expensive. Plan around expected future tax brackets.
Use tax-advantaged accounts: Shift high-frequency strategies into tax-sheltered accounts if feasible — note rules for crypto in IRAs remain complex and custodian-dependent.

Real-world examples (experience-driven)

Example 1 — Cross-account wash sale:

Trader A sold 10,000 shares of ETF X at a $50,000 realized loss in Account 1, and two days later bought the same ETF through a robo-account (Account 2). Broker 1 reported the loss; Broker 2 didn’t report the purchase as matching. On audit, the IRS adjusted the loss for the wash sale. Lesson: centralize trade records and track replacements across all accounts.

Example 2 — Crypto basis mismatch:

Trader B transferred ETH from Exchange 1 to Exchange 2 and then sold. Exchange 2 issued a 1099-B showing full proceeds but no basis since deposit was transfer from outside. Trader B’s own on-chain export established original cost basis (dated earlier). By pre-submitting reconciled lot history with the return, Trader B avoided double taxation on the same proceeds.

Practical timeline and checklist for filing season

Work backward from the filing deadline. Use this timeline to prioritize tasks.

Now (Jan–Feb): Aggregate 1099s, start reconciling trade-level differences, export crypto CSVs, and inventory taxable events (airdrops, staking, forks). Use reconciliations and tools to identify mismatches early — a common approach is to run automated comparisons described in tool-rationalization discussions like Tool Sprawl.
Mid-season (Feb–Mar): Finalize wash-sale adjustments, decide on MTM election (if applicable — consult your CPA), and prepare Form 8949 details. Consider running automated error and explainability checks using modern services (see live explainability APIs) if your reporting pipeline is complex.
Pre-filing (Mar–Apr): Resolve 1099 disputes, compile supporting documents, and have CPA/taxprep run error and audit-risk checks.
After filing: Retain all documentation for at least seven years for trading and crypto events that the IRS might revisit.

When to call a specialist

Hire a tax professional when:

You executed thousands of trades or complex option strategies that create ambiguous wash-sale and tax-lot interactions.
You hold material crypto positions and have staking/airdrops/mining income.
You plan to elect mark-to-market accounting or have carrybacks/carryforwards that affect multiple years.
You received notices from the IRS regarding unreported gains, or your 1099s differ materially from your records.

Key takeaways — concise and actionable

Reconcile all 1099s immediately — treat broker/exchange reports as starting points.
Centralize records for all taxable accounts and wallets; automated import tools matter for active traders.
Watch wash-sales carefully — they apply across accounts and to many instruments; do not assume broker reporting is complete.
Consider mark-to-market cautiously — it eliminates wash-sales but converts capital gains to ordinary income.
Crypto is in flux: track income events precisely and prepare for potential rule changes that could extend wash-sale rules to digital assets.

In turbulent, high-volume markets, the tax outcome often hinges on your record-keeping and early engagement with trader-tailored tax professionals — not luck.

Resources and next steps

Start with these immediate moves:

Export every trade and transaction from every broker and exchange.
Run a trade-aggregation or crypto-tax tool to identify mismatches.
Document communications with brokers/exchanges where you request corrected 1099s.
Schedule a consultation with a CPA experienced in trader taxation and digital assets if you have complex issues — if your reporting pipeline is complex you may also evaluate explainability tooling such as live explainability APIs to help auditors understand automated adjustments.

Call to action

If you traded heavily in 2025, don’t gamble with your filing. Download our free Year-End Active-Trader Tax Checklist, subscribe for weekly trading tax alerts through 2026, or book a consult with a trader-tax specialist. Fast, accurate records and the right election choices can save thousands — act now to lock in tax efficiency before the filing deadline.

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