Using IBKR’s Tax Optimizer

Study Notes:

The Tax Optimizer is an easy-to-use tool that allows you to choose the accounting method you want to assign to a closing trade. We will look at the trade history for an instrument, highlighting the location where both the opening lots and closing trades are shown. We will walk through the various tax methods available and how to change the default setting for all trades as well as individually adjusting the tax method for a specific trade and how to read the output and understand which trades are being matched together and see in real time the effects.

In your portfolio window in either the TWS Classic or Mosaic tab look for the “Account” navigation on the top left of the screen in the header. Left click on the “Account” navigation and on the drop-down menu scroll down to “Tax” in the “Access Reports” area and click on “Tax Optimizer”.  There is also the Tax Optimizer Classic available but I recommend you use the upgraded version.

The Tax Optimizer window will appear on your screen. On the top left of the screen is a white drop- down box. Enter a symbol transacted during the current or prior trading day. Once entered the window will populate with the Open Lots and Closing Trades for that instrument. On the top left of the screen the symbol and company are displayed. Next to that is the default method that will be used for all closing trades. There are 7 choices:

• First In, First Out or FIFO,
• Last In, First Out or LIFO,
• Maximize LT Gain,
• Maximize LT Loss,
• Maximize ST Gain,
• Maximize ST Loss, and
• Highest Price

Below on the left side is the P&L for the Closing trades. Displayed from left to right are number of Unmatched Shares,  Short Term P&L, Long Term P&L, and the Total Realized P&L.

Directly below on the left side you will see  list of closing trades with the following 5 columns:

• Time of the trade,
• Price of trade,
• Short term and long term P&L,
• Number matched, and
• Method used for tax purposes

Underneath the “Method” column you may select a different accounting method than the default for any individual closing trade. Left click on the downward pointing arrow to see the method choices displayed and select the one you would like to use. As you change the tax method selection you will see the row of the Open Lots that the Closing Trade is matched to adjust accordingly. This will also show you the effect each method has on the P&L so that you can see your tax consequences with each method selected.

If you look to the right of the screen you will see, “Open Lots” which is a list of the all the open contracts available to match with the closing trades. Underneath is the total number of trades and how many are matched with closing trades. The opening trades are listed with the following 4 columns displayed:

• Row which is used for mapping the closing trade,
• Date the trade was executed,
• Price at which the trade was executed, and
• Matched which is the number of shares matched with a closing trade.

Client Portal User Guide – Tax Optimizer