RE: reporting losses to IRS - Is it necessary or optional to report
actual financial losses to the IRS? E.g., if one loses money because
something is stolen, or because a purse is lost in the subway, or(AND
THIS ESPECIALLY) if one has incurred losses in the stock market...does
one HAVE to report such losses or (as it seems to me) can one elect
not to? Am I right? (It is presumed that the money one starts out with
to buy the stocks is legitimate and that the buying of stocks is
simply one way that one choses to spend his/her money.) I do not need
a complex answer...a simple 'yes' or 'no' will suffice.

Short answer: generally you are not required to report losses

Longer answer (though not entirely complete): The losses you gave as
examples are each handled differently by the IRS.  The first type,
loss due to theft, is generally deductible (with certain limitations
and requirements, etc.).  The second type, loss due to accidental
misplacement, is generally not deductible.  For each of these first
two types, it is not necessary to report these losses to the IRS if
you don't want to.

The third type, loss on the sale of a stock or other investment, is
different.  If you buy it, and then just forget about it or something
and consider it a loss, I can't think of any reason why the IRS would
have a problem with that.  However, if you sell the stock, even if the
sale price is less than your purchase price, the sale gets reported to
the IRS on a form called a 1099-B (B is for barter/broker).  So, if
you sell a stock for a loss, and don't report it, the IRS is likely to
examine your return to determine that you reported the income from the
sale of that stock as reported to them on the 1099-B.  The proper way
to report it is on Schedule D (assuming you're an individual filer),
along with the purchase price and date.  You are entitled to count
this "capital loss" against your other sources of income (again,
subject to limits and restrictions).  If, for some reason, you didn't
want to reduce your tax burden in this way...well, I guess you might
be able to figure out some way to do that.  However, since the sale of
the stock gets reported to the IRS anyway, you generally can't just
elect to leave it off your return entirely.

NO, you are not required to report anything to the IRS with the exception of income.

kime1r-ga,
Does the same rule apply for option trading? (no 1099 form )
Thanks a lot.

For questions about IRS treatment of stocks and other investments, I
would recommend consulting IRS Publication 550 "Investment Income and
Expenses" http://www.irs.gov/pub/irs-pdf/p550.pdf
(or better yet, consult your tax professional).  The section
discussing Options starts on page 57 of that Publication.

If you received the Options as part of a compensation package from
your employer, consult with your payroll department.  In some
situations, they may be required to report it in your gross income, in
which case you should pay extra attention to make sure it gets
reported correctly on your tax return.

Also note that the Alternative Minimum Tax has special rules for
Incentive Stock Options (http://www.irs.gov/pub/irs-pdf/i6251.pdf ,
page 3)