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FF Trader Tax Thread

Isn't a person required to pay taxes on any profit earned if the amount is left in the account and not withdrawn?
Whats the situation for a Uk resident?

Will my profits be taxed or my withdrawals from my account that hit my bank account... assuming the broker has no obligation to report my activity to any authority?

Kavs
_____________ Kavs Make It Happen For Yourself
Well not in a few countries, but I'd say probably in any G7 or Western European country for sure* you'd have to pay.

(* = a hunch based on my research and what people told me, I haven't studied the tax codes of all these countries... but I'd be greatly surprised if any of them allow it... and actually if any do, please let me know by PM - thanks

Quoting southernmind
Isn't a person required to pay taxes on any profit earned if the amount is left in the account and not withdrawn?
Hi,
It is quite simple question to answer.
If your are meeting your living expenses through trading meaning by you are full time trader then it is not a capital gain.
If you trade in addition to your business for income then it is a capital gain.
It is no question where ever you keep your assets, you have to report them in your assets reported annually in your tax returns.If someone does not report it then it falls into the perview of misreporting, witholding information and wilfully evading.

kenyan
(Canadian)

Quoting NasdaqNinja
Dear Tax Trader,
Just a quick question, i've been all over the net and searched these forums and can't seem to find out how Forex gains are taxed. I live in Canada and was wondering if Forex was taxed as capital gains or income? i could not find it anywhere in the capital gains section of the canadian tax code.

on a second note, i also noticed that there seems to be alot of trading
through companies, especially offshore. could someone please explain
the advantages in layman terms? dont you have to pay tax anyway if u
want to bring your money back into the country? i know this is probably
too expensive of an option for me (only 10000 trading account, but i would like to understand it anyway.)

any clarification would be greatly appreciate. thanks.

NasdaqNinja
Hi,
I know that Canadian law says to report your profits every year even though they have not been withdrawn.If some one ended with no profit and no loss meaning by zero result of trading, even then he/she has to report the amount of investment made in that year.

kenyan

Quoting southernmind
Isn't a person required to pay taxes on any profit earned if the amount is left in the account and not withdrawn?
so if it not "capital gain" you are not taxed on it?

Or is it the bad one....where capital gain means only 1/2 is taxed

and if you a full time trader all your profit gets taxed? Thanks
Quoting Audio_Rookie
so if it not "capital gain" you are not taxed on it?

Or is it the bad one....where capital gain means only 1/2 is taxed

and if you a full time trader all your profit gets taxed? Thanks
of course FX profits are taxable. I should have mentioned before about your previous statement (paraphrasing) that "if taxes are low, then it would be worth it". You should concentrate on making money not how much you can save (in my opinion). I know when I get poor I think irrationally. Like how to save money by shopping at cheaper grocery stores - and suffering the poor service (i.e. waiting in line)... then I get my act together and start thinking about how to make money, not save it - and after a while, I've got lots of money again

in Canada, capital gains are only taxable 50%. It means if I sell my company for $1,000,000 (for instance), that is a capital gain. So I pay about 23% (46% * 50%) or $230,000 in taxes. Because only $500,000 of that million is taxable. (this example ignores the once in a lifetime capital gains exemption)

but as for whether fx trading constitutes capital gains or income, read the kenyantrader posts and the link to that moneytec thread I gave you. The moneytec thread talks about this in detail - capital gains vs. income.
ya it seems to sway back and foreth...I guess I just dont like to hear I would have to pay tons of taxes lol.

I bet there are probobly thousands of people avoiding taxes by transfering to offshore accounts and such. Its obvously illegal, but if the tax man dosnt know then people still get away with it. Not worth the risk if you ask me.....kinda cruel to give 1/2 of your hard earned profits on forex to the tax man. Especially when your trying to compound it in your account and you have to give 1/2 of it away at the end of the year.
Hello Jim,
Recently I have been approached by a swiss based broker trying to get me to open an account with them. The big sales pitch is that because they are swiss based and there is no capital gains tax in their country that even as an American citizen I would not have to pay taxes on my transactions. My first response to the salesperson was that they are wrong I would still be required to report my profits but they insisted that is not the case. They even push this on their website. So my question is simply are they lying or are they correct about the declaration of profits? Thanks
Quoting Audio_Rookie
ya it seems to sway back and foreth...I guess I just dont like to hear I would have to pay tons of taxes lol.

I bet there are probobly thousands of people avoiding taxes by transfering to offshore accounts and such. Its obvously illegal, but if the tax man dosnt know then people still get away with it. Not worth the risk if you ask me.....kinda cruel to give 1/2 of your hard earned profits on forex to the tax man. Especially when your trying to compound it in your account and you have to give 1/2 of it away at the end of the year.
yes this is one of the reasons there are (were?) so many millionaires in HK. Compounding works wonders in the absence of taxes. Or I guess they have some taxes, but they are low.
Quoting NasdaqNinja
Dear Tax Trader,
Just a quick question, i've been all over the net and searched these forums and can't seem to find out how Forex gains are taxed. I live in Canada and was wondering if Forex was taxed as capital gains or income? i could not find it anywhere in the capital gains section of the canadian tax code.

on a second note, i also noticed that there seems to be alot of trading
through companies, especially offshore. could someone please explain
the advantages in layman terms? dont you have to pay tax anyway if u
want to bring your money back into the country? i know this is probably
too expensive of an option for me (only 10000 trading account, but i would like to understand it anyway.)

any clarification would be greatly appreciate. thanks.

NasdaqNinja
NasdaqNinja, I know very little about Canadian taxes, however in the US FOREX can be taxed as capital gain (1256 contracts) or ordinary income (Sec. 988 trades)

We do not believe that there is any advantage, and a lot of downside risk for the average trader to use an offshore account. Large companies who have lots of attornies and cpa's on staff can navigate the mine fields, however for most of us it is too confusing. Traders Accounting
Quoting catfish
I'm glad this thread was started and look forward to the advice. It will definetely help out us smaller traders on the verge of growing accounts and thinking about converting to a LLC etc.

For right now I'm interested in getting information for claiming taxes, if you have say a mini account, and withdrew a few thousand within the year, as an individual trader.
Thanks.
Catfish. I do not understand what you are asking. You will pay taxes on all of your gains, realized or not, whether or not you take the money out of the brokerage. If that answers it, great, if not, please clarify for me. Thanks. Jim at Traders Accounting.
Quoting southernmind
Isn't a person required to pay taxes on any profit earned if the amount is left in the account and not withdrawn?
Thanks for the email Southermind, yes you are required to pay taxes on any profit you earn, whether or not you take it out of your brokerage account, further to this if you are trading the 1256 contracts, any open position at the end of the year, will be included in your gain/loss for the year. Hope this helps. Jim @ Traders Accounting
Quoting kavsp
Whats the situation for a Uk resident?

Will my profits be taxed or my withdrawals from my account that hit my bank account... assuming the broker has no obligation to report my activity to any authority?

Kavs
Kavs, sorry, know nothing about UK taxes. Jim @ Traders Accounting
Quoting Audio_Rookie
so if it not "capital gain" you are not taxed on it?

Or is it the bad one....where capital gain means only 1/2 is taxed

and if you a full time trader all your profit gets taxed? Thanks
Whomever answered the original email was talking only about Canadian taxes, (and I do not know if it was correct or not) not US Taxes. We need to be careful as to who we listen too, I have reviewed the past two years of posts, and found a few really bad posts that could get someone in trouble with the IRS if they followed them. Jim @Traders Accounting
I am curious if anyone here has used the services of Traders Accounting.

I have received the feedback from the free questionnaire and did the follow-up phone call. A price was given for the corporation setup, etc. I did find it odd that when I asked if there was any documentation they could send me regarding this I was told no. I am new to this so maybe this is normal.

Would like to get opinions from those that have used their services. PM's are welcome if you don't want to post here.
Quoting Snuffleupagus
I am curious if anyone here has used the services of Traders Accounting.

I have received the feedback from the free questionnaire and did the follow-up phone call. A price was given for the corporation setup, etc. I did find it odd that when I asked if there was any documentation they could send me regarding this I was told no. I am new to this so maybe this is normal.

Would like to get opinions from those that have used their services. PM's are welcome if you don't want to post here.

Hi Snufflepagus

What documentation did you request from them? You did not state above. Ask Traders Accounting if they would consider submitting your taxes as I.R.S. Status 1256. If they say no... do not use them. I have recently been told that they are interpreting the tax code differently from Green Tax Service which does allow traders to use the Status 1256. This is a difference of 12% in taxes in your favor.

Save money and set up your own corporation...and consider the L.L.C. which is only taxed once rather than being taxed twice like the S and C Corp setups. Then change your brokerage trading status to Corporation instead of single trader.

Good Luck!
Quoting Snuffleupagus
I am curious if anyone here has used the services of Traders Accounting.

I have received the feedback from the free questionnaire and did the follow-up phone call. A price was given for the corporation setup, etc. I did find it odd that when I asked if there was any documentation they could send me regarding this I was told no. I am new to this so maybe this is normal.

Would like to get opinions from those that have used their services. PM's are welcome if you don't want to post here.
I don't know Traders Accounting, but I question the advisability of a Corporation for a trader. Although everyone's situation is different, generally a trader should be using an L.L.C. rather than a corp. An L.L.C. is pretty easy to setup, usually only a couple hundred dollars, and the tax savings even for a small trader will very quickly return that.

Jim
Quoting Forexflyer
Hello Jim,
Recently I have been approached by a swiss based broker trying to get me to open an account with them. The big sales pitch is that because they are swiss based and there is no capital gains tax in their country that even as an American citizen I would not have to pay taxes on my transactions. My first response to the salesperson was that they are wrong I would still be required to report my profits but they insisted that is not the case. They even push this on their website. So my question is simply are they lying or are they correct about the declaration of profits? Thanks
That is correct. I will not be required pay capital gain taxes in Switzerland, however you will still have to pay taxes in the US.

LOL
I read through this thread a few other tax threads, and stilll have a question. Hopefully someone can answer this question.

I recieved a 1099-B from my broker that showed my profit in block 8 and 11, and from reading I would like to elect out of the 988, and use the 1256. I will use the form 6781, but do I need to attach a list of every trade I made? Any help would be greatly appreciated.
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