Tax Treatment of Forex Gains/Losses

Sorry if this has been covered elsewhere -I couldn't find anything, but I suspect it has, so I'd be happy to be directed to an appropriate thread.

Quite simply, I first traded on Forex last year. Shockingly, I have an overall capital loss.

I'm in the U.S. Not realizing this is treated differently from stocks and domestic commodity exchanges, I was expecting a 1099 form. When I didn't get one, I did enough digging to realize that I won't be getting one and now I'm not sure how to treat this on my taxes. I've contacted an accountant I know who'd never even heard of Forex, so my faith in him on this particular topic is less than ideal.

I figured that you traders here from the U.S. have to deal with this, and was hoping to get guidance (don't worry, I won't hold you legally liable) on the best way to handle.

I was thinking that it's truly an equity balance differential (e.g. if I put $5,000 in, and ended on 12/31 with an equity balance of $3000, it's a $2000 capital loss). Is that correct? And what form(s) need filling out? And what detail is required? (crossing fingers hoping a line-by-line of all trades is NOT required!)


I do my taxes via Turbo Tax, and until now the complexity of my taxes was no more difficult than entering a salary, and obvious deductions. Please assume I'm a novice when responding.

Any help is appreciated.

Thanks,
Joe

Hello Joe T,

I searched last year for the same information. I think I can help you. First read this: I AM NOT AN ATTORNEY, CPA, TAX PLANNER OR TAX ADVISOR. I TAKE NO RESPONSIBILITY FOR YOUR TAX RETURN OR HOW YOU CHOOSE TO USE TURBO TAX. THE FOLLOWING IS INFORMATION ONLY, NOT ADVICE.

With that said, here is what I did both last year and this year with Turbo Tax:
Use the investment income section - contracts and straddles.

Next screen:
Any straddles or section 1256 contracts? CHECK YES

Next screen:
Any elections? DON'T CHECK ANY BOXES

Next screen:
Contracts and straddles - check any of the following that apply. CHECK SECTION 1256 CONTRACTS MARKED TO MARKET

Fill in your account number and the total loss or profit for 2009.

Answer any following questions NO.

Hope this helps you. Happy trading!

Thank you for the response. I will print this out and run it by a tax accountant for reasonableness just to make sure he agrees that this looks appropriate, so no I won't hold anything against you! I mainly was looking for a good, reasonable way to start and then for verification.

Appreciate it.

Of course, if anyone would disagree, please let me know what any issues may be.

hi

i am new here,
i am just wondering do we have to report all of the transaction or not like stock? if they don't give a form. or only a balance report at the end of the year.

thank you.

It depends on how you want to report your trades. If you use Turbo Tax and follow the method I outlined for Joe T, you only report the total gain or loss for the year. You can get that number on-line from the reports section of your account.

I have posted this information on several sites here at FF, and am not a CPA or have ever done business with this company. But I have traded for 5 years and fill out forms as a trader. http://www.greencompany.com/Educatio...Currency.shtml Hope it helps.

Do you write it off as a deduction like a business? or it's like gambling which deducts out only the winning?

Once again, I AM NOT A TAX ACCOUNTANT AND TAKE NO RESPONSIBILITY FOR HOW YOU CHOOSE TO FILE YOUR TAXES.

I believe that, if you use TurboTax like I did and claim Section 1256, the gain or loss is reported as Capital Gains or Losses on schedule D and follow the same rules as any other Capital Gains you have from investing.

Happy Trading,
Jabber

It is just income tax in Aus, any loss lowers your nominal tax rate. So if you get paid 60k in your day job and lose 10k trading, you pay tax on your day job as if you only earnt 50k. However, you have to show that it isn't a hobby and is a legitimate business which is easy enough.

How does this compare to the US?