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Forex Taxes

  • #241
  • Oct 24, 2007 6:48pm Oct 24, 2007 6:48pm
http://www.ibfxu.com/Courses/TAX/tax1010.aspx
  • #242
  • Oct 24, 2007 8:43pm Oct 24, 2007 8:43pm
Quoting lcfxtrader
http://www.ibfxu.com/Courses/TAX/tax1010.aspx
Thank you lcfxtrader.

I am new to all this, so anything I can read up on the subject of trading is very interesting.

Do you trade forex (in what I beleive the slang is "Bucket Shops") like Oanda, or do you trade Forex Futures? I believe "Spot Forex" is the term for the "Bucket Shops" (or Over The Counter) where the broker basically takes the other side of the trade and has a pip spread.

It appears the Futures and Option Forex traders are defaulted to the 1256 contracts, so they have lower gain taxes (split 60/40 before going into capital gains on the 1040 form), but no tax break for losses. And the same is true for the "Bucket Shops" (Over The Counter). Though if you are crafty with your taxes, and declare so early enough, you can opt out for the 988 plan, which allows you to show your losses as a tax credit.

Am I reading this correct?

Thanks!
  • #243
  • Nov 2, 2007 7:10pm Nov 2, 2007 7:10pm
Besides the obvious costs of computers, links, etc are there any forex specific deductions that can be made?

For example you can generally claim interest on a margin loan. We use margin on our accounts... We pay swap... Is there anything we can use here to offset profits to pay less tax?
  • #244
  • Nov 4, 2007 2:12am Nov 4, 2007 2:12am
Do a search on FF for username: tradertax (not sure if it's capitalized)

I, personally, was on demo this time last year so this will be my first time paying taxes.

If your trading on an ECN, you might be able to write off commisions...not sure.

When you do the search, you will find a lot of info about how it all goes. I think his website is tradersaccounting.com (not sure)
  • #245
  • Nov 4, 2007 4:53pm Nov 4, 2007 4:53pm
If you are in the US, then you need to go to a site like www.simscpa.com. See if you are an investor vs a trader, which is very important. When you start making good money You must file your taxes correctly to get the benefits that forex gives. 99% of CPA's don't understand forex.
  • #246
  • Edited 1:18pm Nov 15, 2007 11:56am | Edited 1:18pm
There are excellent topic matters on the forum relating to the taxing of capital gains. Use the search feature to find these articles.

By using status 1256, you can claim 23%. Look for these articles.

Quoting unlv_tj
How is Forex income from trading reported to the IRS?

I know you will get an income statement from your broker at the end of the year.

If you make gains on your trading, is it taxed at an "income rate" or is it considered "capital gains"?

I know if you sell stock you hold for less than a year, you get taxed at a short term capital rate, so the tax rate is 30 or 38%. If you sell stock you have held for longer than a year, the tax rate is currently 15%. You can also sell stock you are down on, and show up to $3,000 a year for a tax write off.

How does Forex tax rates compare?
  • #247
  • Nov 16, 2007 4:00pm Nov 16, 2007 4:00pm
anyone have any insight on the forex tax regulations in canada specifically BC? thanks
  • #248
  • Edited 7:22pm Nov 23, 2007 7:18pm | Edited 7:22pm
Does anybody have experience with IRS tax audits? I have a question about whether the spread is viewed as an operating cost by the IRS. The Forex market praises "no commission", which is tax deductible. Does spread = commission in this sense?
EURUSD Spread = 2
Position Direction: BUY
Lot size: .1
Price enter 1.4900
Price exit: 1.4910
Profit: 10 pips = $10

Would $10 or $8 be reported to the IRS for profit?
  • #249
  • Nov 23, 2007 7:36pm Nov 23, 2007 7:36pm
I think it is a cost of doing business, so I am pretty sure the answer is yes.

At the end of the year, if you seperate your spread from winnings and losing trades, your "business performance" are the moves without spread, and the spread totals are expenses.

Need to talk to an accountant to be sure.
  • #250
  • Nov 23, 2007 10:41pm Nov 23, 2007 10:41pm
If the difference between the buy and sell or vice versa is taxable as income then it follows that the component of that difference (the spread) incurred to earn that taxable income and chargeable by your broker is deductible.
The road to pipland is arduous and fraught with challenge.
  • #251
  • Nov 24, 2007 12:19am Nov 24, 2007 12:19am
I have to admit I have not dealt with the IRS bedore but tax authorities in other countries would ask you whether you do this as a business first , if this is a business they would allow you to deduct all expenses related to it but if you should make losses on a regular basis and try to report them to minimize the overall tax payments you need to make for income from other sources they may question the status of your trading as business and in that case they might not allow you to deduct losses.Eventually there are so many people addicted to gambling , I doubt very much that any tax authority would tolerate losses from trading year after year unless you have proof you do it for a living
  • #252
  • Nov 24, 2007 12:55am Nov 24, 2007 12:55am
Quoting Fivelsanuke
Does anybody have experience with IRS tax audits? I have a question about whether the spread is viewed as an operating cost by the IRS. The Forex market praises "no commission", which is tax deductible. Does spread = commission in this sense?
EURUSD Spread = 2
Position Direction: BUY
Lot size: .1
Price enter 1.4900
Price exit: 1.4910
Profit: 10 pips = $10

Would $10 or $8 be reported to the IRS for profit?
Five,

You should really consult your tax advisor for this info.

For a trader to exit positive "net" 10 pips with your 2 pip spread, the eurusd has to move a total of 12 pips.
Fxj
Proper Prior Planning Prevents Piss Poor Performance
  • #253
  • Nov 24, 2007 12:57am Nov 24, 2007 12:57am
Not necessarily.

There is an understanding with revenue authorities worldwide that startups may transition from a period of net loss to eventual profit....continued loss though calls into very question whether the activity is a business in the first place and thats when avoidance/evasion issues arise.

I would assume though that any trader seeking to use his/her trading expenses in a tax scenario would at the very least be in the business seriously. It's not terribly easy to use that sort of activity in a mitigation structure as opposed to say for example, a rental property trust.
The road to pipland is arduous and fraught with challenge.
  • #254
  • Dec 16, 2007 10:10am Dec 16, 2007 10:10am
If your a US resident living in the US and have your broker outside the US.

ha ha, I know a slim chance but thought I'd ask anyways.
***Building an EMPIRE one pip at a time***
  • #255
  • Dec 18, 2007 4:27pm Dec 18, 2007 4:27pm
no ideas anyone?
***Building an EMPIRE one pip at a time***
  • #256
  • Dec 18, 2007 5:20pm Dec 18, 2007 5:20pm
If you reside in the United States, it does not matter where the broker is located, absolutely no tax advantages. Sorry!

There are many postings on this subject if you use the search feature.
  • #257
  • Dec 19, 2007 1:24am Dec 19, 2007 1:24am
Do you know of any tax advantage for those like myself living abroad trading FX? I file my U.S. taxes but also file for the Foreign Income Exclusion.

Do you know if living outside the U.S. and using an FX broker outside the U.S. would qualify a U.S. citizen to not pay taxes on his/her FX profit?

Thanks.

COTtrader
Decisions Determine Destiny -
  • #258
  • Dec 19, 2007 9:23pm Dec 19, 2007 9:23pm
If your not a citizen of the us and you do not reside in the us, you pay taxes for the country you reside in. Check with the laws for your own country. Keep in mind that all countries have their own tax laws.

Either way, it does not matter where the broker is located, this is not a factor for any tax equation.
  • #259
  • Dec 19, 2007 9:45pm Dec 19, 2007 9:45pm
Quoting COTtrader
Do you know if living outside the U.S. and using an FX broker outside the U.S. would qualify a U.S. citizen to not pay taxes on his/her FX profit?
Qualify for zero taxes?? Please share with us whatever it is you're smoking.
Why would the broker's location matter to the IRS?

There was a thread years ago on the ET forums about US traders in the Bahamas, somehow trading through an off-shore LLC gave them a greater benefit than just the Foreign Income Exclusion alone, of course the details were vague.. which leaves me with doubts as to the accuracy and legality of their claim. I would definitely talk to a tax attorney first. It'll be costly.

But $0 tax on the first $90k from the FIE, and 23% max on everything beyond that, you're getting a decent break (yes it should be zero for living abroad like how all other countries do it, but this is the IRS).
  • #260
  • Edited 7:40am Jan 1, 2008 6:52am | Edited 7:40am
Hello All,

Does anyone know whether CapitalGainsTax Tax is applicable for foreign exchange transactions where the notionals are money that you have and not spreadbetted / leveraged.

Suppose you bought USD when it was 2.05 and it is now 1.95 would the difference be taxable?

Spreadbetting in the UK is entirely tax free.

Any ideas?

Thanks
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