Forex Taxes

Are there any accountants out there that understand Forex tax laws that would like to share some information about the best ways to work out tax angles. I have an accountant right now that I am not sure how much he knows about the rules governing Forex earnings.

IRS 1256 HMMM< I will have to cehck it out too Thanks!

Many thanks to everyone in this thread I appreciate the effor that went into the posts!

Bond007 Thanks for the tips!

Merlin you know your stuff! Do you studdy tax laws?

Sorry if this is out of topic but I just received a letter from the IRS where they say that I have to pay taxes on a few penny stocks I bought and sold back in 2006.

Please keep in mind that due to my lack of experience and young age at that time, I did not report those transactions on my taxes because they were all losses and I did not make 1 penny of income out of them (once again, I lost $$$), therefore I just forgot about it.

Now by looking at the letter of the IRS, all those sales appear as income, because they do not know at what price I bought those stocks, all they know is what was the proceed of the sale (eg. I bought a stock paying $80, sold it at $56, the IRS shows "sale proceed:$56" as if it was a profit.)

Why the broker did not give them that info in the first place ? Now how do I go about proving to them that those were all losses ?

Any help is truly appreciated !!!

Thanks !!!

Mr Future

To stick it back up the IRS, get hold of the receipt when you bought and the receipt when sold. I have only sold stocks that my employer gave me, so I'm not fully up with the jargon. You should be able to go back to your broker and get copies of the certificate/receipt when you bought-in which will show the price at the time. IRS obviously has the paperwork for when you sold.

When purchasing any type of securities, commodities, etc., you should always keep all statements showing the transaction purchase and sold. Your broker will only send statements showing proceeds, they do not do the accounting for you, that is your responsibility. A broker only keeps statements for a certain amount of time, if they do not have it because of the amount of time which have lapsed, you are SOL "sh*t out of luck."

Anyhow, the same holds true for any retirements accounts, mutual funds, etc. which you may hold. Say you are age 25, and start withdrawing from your accounts or close the accounts when you retire, you better have all those yearly statements to prove your cost basis. You do not want to pay the IRS for something that was post-tax....

In Australia, businesses must keep records for 5 years. Would assume it's about the same in the US. Don't hold me to it though...

Did you use UBS ?

Did you receive a form 1099 from the broker?

Thanks for your help guys ! Hopefully I'll be able to solve this ASAP.

And no, I did not use UBS it's another broker, Choicetrade, pretty cheap, but I don't trade stocks anymore.

Anyways, thanks for the help to all of you !

Yes I did, but just like the info they gave to the IRS, it shows evertying as proceeds, therefore I gotta go on the actual transaction history and work with that. What a pain.....

Been through the same thing, sort of. I traded someone else's stock account, got the transaction history together for them and explained what they had to do with the history and 1099. They never filed it and a few years later I had to get the transaction history again so they could file an amended return.
I think this is a common mistake and the IRS is reasonably forgiving of it provided you can come up with your transaction history.

Brokers have varying requirements, don't count on them to send the IRS anything. Your 1099 (R?) shows just the end sale proceeds and not the net then?

You'll need to get a printout of transaction list. They each count as a capital gain or loss. Keep in mind that losses are limited unless you could qualify as a professional trader at that time (unlikely). This means there are wash sale restrictions and limits on the losses you can take (around $3000 total).

I don't know if you could qualify for the mark-to-market rules on these trades (hence able to take them as personal income), but if your trades weren't worth much then it's not really that important. Read IRS publication 550 and the instruction booklet that goes with schedule D (capital gains and losses).

You can get them at:
http://www.irs.gov/formspubs/index.html

You might also want to get an accountant that specializes in this area. It's definately not a bad idea.

Anyway, you can file an amended return, attach schedule D and a copy of your transaction list, figure out your gains and losses and report as appropriate. The good news is if you didn't have any additional claimed losses you could claim some of your penny stock losses and might be able to get a refund. =)

The bad news is... if you do owe money you'll probably owe back fees and interest, and if it's a substantial under-reporting you'll end up with penalties too. Hopefully that isn't the case.

Good luck!

Stick it to them and write the losses off. Reminds me of my 2004 taxes where a majority of my income was w-2 and about 7k was in 1099. I hadn't gotten around to filing (younger and stupid) by August and they sent me a letter complaining about the taxes I owed on the 1099. Mysteriously no mention of the money they owed me from the w-2. So I sat down and did my taxes to request my 2.5k refund.

Vensik and Rabid are right.

Fill out the Sched D, claim the loss, and get a refund for 2006.

There are different rules for short term and long term capital gains /losses. You might have to carry some of the loss over to 2007, if it's over 3000.

Hello all Traders,

I just checked the monetary law in my country, Mexico, and we dont pay taxes in FOREX profits transferred/wired back to my account in Mexico because we have monetary treaty US-MEX.

So in short, this protects investors from double payment of taxes ("double tributacion"(Spanish)). This means you pay taxes once (in one country). I heard some countries pay both ways!

Just curious, do you pay taxes from your profits transferred/wired back to your account outside the US?

OPINION POLL ABOVE...

Appreciate it
Dimitri

yup... good ol US of A.
I also heard they are going to simplify the tax reporting and payment system here in the USA......
The new form has only one question and a single simple 1 line instruction

1. How much money did you make last year?
2. Just send all of it to us.

25% Flattax on all capital gains thats all.