Recording Gains and Losses
In addition to the recording of the money flows in to and out of your account, you should record the gains and losses on your actual day trading activities. If you are making more than a few trades a day, the best way to record the gains and losses in your account is to make a record of the net gain and loss from your account on a daily basis. This can be done by writing down the value of your account before each trading session. This would be compared to the amount recorded on the closing of your last trading session. Any difference between the two would indicate the addition of interest that accrued from one trading session to the next. This interest should be recorded, separately, as interest is recorded separately on a U.S. tax return. After you take out this accumulated interest, the number you are left with is your actual trading session's starting amount.
As you trade throughout the day, you should keep track of the gains and losses that are generated with each trade. If you have a small amount of trades this can be easy to do, as you should be keeping records of your trading for review purposes. If you are doing many trades each session or you are engaging in trades that are retained from session to session such as an FX carry trade, or longer timeframe accumulation of a position, there is another method of recording gains and losses.
This alternate method is perfectly acceptable as far as the IRS is concerned and is often used in CPA tax preparation offices where the client is a heavy trader. In this method, your day trading account's value at the beginning of the trading session would be recorded, and after all of your trades were made, and your positions were opened and closed, you would record your day trading account's ending balance.
Make sure you are recording additions to and subtractions from your day trading account properly. If you don't identify them on your record, you will lose track of what is profit and what is an addition and subtractions of capital when you figure your books during tax time.
The account's ending balance would be subtracted from the beginning balance. The ending result would be your net gain or loss for that trading session. This daily gain or loss would be recorded in a separate book, labeled “Day Trading Gains/Losses per Session.” Each session would be recorded on a separate line, with the date, amount of gain or loss, and the words “day trading, various.”
The combined records of your expenses, money spent on fixed assets, deposits into and out of your day trading accounts, and the record of your daily day trading gains and losses make your record keeping complete. If you keep your gains/losses record and your cash record, you are going a long way in keeping your day trading business's overall profits and losses easy to keep track of, and ready for any formal document preparation.