Forex Taxes | Page 8 | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

Canadian Taxes- How do I report my forex income? Please Help 1 reply

Forex Taxes 4 replies

Taxes & Forex 36 replies

UK Taxes and Forex 5 replies

Forex Taxes -- In The USA 3 replies

Forex Taxes

  • #141
  • Jan 25, 2007 8:09am Jan 25, 2007 8:09am
Quoting Warmagus
Look at the crappy tax code we have to put up with in America.
Why don't we get rid of all this BS and replace it with the FairTax?

The FairTax is a consumption tax everyone pays one time, at the retail level. It replaces income tax, capital gains tax, social security and medicare tax, corporate income tax, and the death tax. It completely untaxes the poor because all spending up to the poverty level will be tax free.

The US tax code is so complicated it's estimated that the cost of complying with it is 400 billion dollars a year. Lets get this albatross out from around our necks by supporting what I believe is the single most important piece of legislation on the Hill. FAIRTAX
You need to find out which of our Government officials are for this idea and ask them what progress is being made to enact The FairTax. This would also eliminate more than half of our I.R.S. employees.
  • #142
  • Jan 25, 2007 8:48am Jan 25, 2007 8:48am
As messed up as our tax system is, if all the people knew where the "fair tax" came from, they'd oppose it just as badly as unions and gain share bonuses at the end of the year.
Value Added Tax? Or the flat tax? Only the former communist countries have a flat tax.
VAT would probably ruin the economy if you were to increase the price of all goods and services 15% or so percent when they go shopping. Now the cost of baked beans, to the consumer, is 15% more.

These tax stories makes me want to move or just not trade at all. The amount of stocks I traded last year, total buys versus sells are more than I ever made in a year.
  • #143
  • Edited 2:27pm Jan 25, 2007 11:02am | Edited 2:27pm
Hello Everyone -

With tax time coming I wanted to post some information from our website for everyone to read. I hope you find this helpful.

Know What You Trade to Avoid Tax Trapsą

The dynamics of the forex markets can be lucrative to skilled traders, but when income tax time rolls around, currency traders receive special treatment from the Internal Revenue Service, the subtleties of which can sometimes trip up the unsuspecting.

Here's a look at the tax landscape for forex traders, and why it may be a good idea to have a Traders Accounting tax professional help guide you through the twists and turns.

Futures and Cash Forex

Forex is traded in two ways: as currency futures on regulated commodities exchanges, which fall under the tax rules of IRC Section 1256 contracts, or as cash forex on the unregulated interbank market, which fall under the special rules of IRC Section 988. Many forex traders are active in both markets.

Because futures and cash forex are subject to different tax and accounting rules, it is important for forex traders to know which category each of their trades fall into so that each trade can be reported correctly to receive optimum tax advantage.

Section 1256: The advantageous Split

Forex traders receive a significant tax advantage over securities traders under Section 1256: reporting capital gains on IRS Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles) allows you to split your capital gains on Schedule D, with 60% taxed at the lower long-term capital gains rate (currently 15%) and 40% at the ordinary or short-term capital gains rate of up to 35%. That combined rate of 23% amounts to a 12% advantage over the ordinary (or short-term) rate.

If you trade exclusively in forex futures, it's smooth sailing come tax time; your trades fall under Section 1256 and automatically receive the 60/40 split.

But things get a little more complicated tax-wise if you dabble in cash forex, which is subject to Section 988 (Treatment of Certain Foreign Currency Transactions).

Section 988: To Opt Out or Not?

Section 988 was enacted as a way for the IRS to tax companies that earn income from fluctuations in foreign currency exchange rates as part of their normal course of business, such as buying foreign goods. Under this section, such gains or losses are reported and treated as interest income or expense for tax purposes, and do not receive the favorable 60/40 split.

Because forex futures do not trade in actual currencies, they do not fall under the special rules of Section 988. But as a currency trader, you are exposed daily to currency rate fluctuations, hence your trading activity would fall under the Section 988 provisions.

But because currency traders consider these fluctuations part of their capital assets in the normal course of business, the IRS enables you to opt out of Section 988, and thereby retain the favorable 60/40 split for these gains under Section 1256.

The IRS requires that you note "internally" your intention to opt out of Section 988 before making the trades; you are not required to notify the IRS. Obviously, some traders bend this rule based on their year-end outcome, and there seems little inclination on the part of the IRS to crack down, at least so far.

As a rule of thumb, if you have currency gains, you would benefit (reduce your tax on gains by 12 percent) by opting out of Section 988. If you have losses however, you may prefer to remain under Section 988's ordinary loss treatment rather than the less favorable treatment under Section 1256.

Tax Time: Tougher for Currency Traders

Forex futures traders tend to breeze through tax time; their brokerage firm sends them an IRS Form 1099, on which their aggregate profit or loss is listed on Line 9.

But since currency traders don't receive 1099s, you are left to find your own accounting and software solutions. Don't be tempted to simply lump your currency trades in with your Section 1256 activity, a common temptation; these trades need to be separated into Section 988 reporting, and in cases of loss, you could wind up paying more tax than necessary.

1. EFX Group does not offer tax advice. All information relating to taxes was obtained from Traders Accounting, Inc., 14040 N Cave Creek Rd, Suite 302, Phoenix, AZ 85022. As a fast-growing market segment, forex trading is almost certain to come under greater IRS scrutiny in the future. An experienced Traders Accounting tax professional can help you file in full compliance with IRS rules and make the most of your tax advantages. Call Traders Accounting at 800-938-9513 if you have questions or would like to discuss this in further detail.

http://efxgroup.com/about-forex-tax-tips.html
  • #144
  • Feb 2, 2007 4:04pm Feb 2, 2007 4:04pm
My wife and I are trying to file our taxes with TurboTax and I'm completely lost on what needs to be done. I received a form 1099-B in the mail, but I don't really know what needs to be done with it. I can't figure out what type of Investment it goes under. Does anybody know or can anybody help?

Is it even necessary to report it if I've only lost $150 with Forex? Haha!

Thanks alot!
  • #145
  • Mar 10, 2007 2:09pm Mar 10, 2007 2:09pm
Hi
I'm hoping to trade currencies later this year. I've only seen one broker with tax information. I got a trader tax book which is generally helpful. I want to open an account with $5k. Anybody care to share good or bad experiences with their taxes? Is an LLC good for this small amount of cash? Does trading with a swiss firm help with avoiding capital gain taxes or does it become a hassle?
I appreciate your input.
  • #146
  • Mar 10, 2007 2:10pm Mar 10, 2007 2:10pm
Quoting mdetlh
Hi
I'm hoping to trade currencies later this year. I've only seen one broker with tax information. I got a trader tax book which is generally helpful. I want to open an account with $5k. Anybody care to share good or bad experiences with their taxes? Is an LLC good for this small amount of cash? Does trading with a swiss firm help with avoiding capital gain taxes or does it become a hassle?
I appreciate your input.
well if you are new to currency trading, there's a good chance your first year you won't be profitable. But don't let this discourage you in the least, it just means you won't have to worry about taxes. There is a large tax thread somewhere on here with input by a CPA.
  • #147
  • Mar 10, 2007 6:36pm Mar 10, 2007 6:36pm
Don't worry about LLC with smal trading amount.
LLC is Limited Liability Company and is opened to avoid personal liability as well as to create a partnership sometimes. Neither applies to forex trading unless you work with somebody else or giving out trading advcie or something.
Swiss account won't save you anything on taxes. You still have to report your gains to the IRS.
  • #148
  • Mar 10, 2007 8:14pm Mar 10, 2007 8:14pm
Quoting mdetlh
Hi
I'm hoping to trade currencies later this year. I've only seen one broker with tax information. I got a trader tax book which is generally helpful. I want to open an account with $5k. Anybody care to share good or bad experiences with their taxes? Is an LLC good for this small amount of cash? Does trading with a swiss firm help with avoiding capital gain taxes or does it become a hassle?
I appreciate your input.
Actually, there are more than one broker that does accounting for forex traders. Do an internet search and you will find them. We have a thread for one of these accountants.

Wait until your doing well with your trading before considering an LLC and forget the swiss firm ideas. As long as your a resident of the U.S., your responsible for your taxes and don't consider bypassing the I.R.S. Pay the capital gains and have a clear conscious. Forget looking for illegal loop holes.

I have an LLC and I trade 1256 Status and I am thankful I get this capital gains status. Be prepared because Uncle Sam may audit you at first just to make sure that he is getting his share. If you even think about cheating him, you will be on his list for the next few years following, and I don't mean his christmas card list either. I have never been audited thanks to my honesty.
  • #149
  • Mar 11, 2007 12:47pm Mar 11, 2007 12:47pm
From what I gather here, the tax book and a broker's web site, I aim for the 1256 status as a forex trader.
I think the last question I have pertains to whether or not I can keep a standard deduction of 6 in the household = about $18000 or if I start itemizing everything once I start trading.(Can I keep the standard deduction and attach the 1256, the 6781?requirements whether I gain or lose from the $5k amount?)
I don't need to worry about trader versus investor status cause I only want to trade forex. So whatever input I get here, I check out with an experienced trader CPA when taxes are due and I won't bother with trying to trade through a Swiss firm.
Thanks all,
  • #150
  • Mar 11, 2007 6:59pm Mar 11, 2007 6:59pm
Hello everyone, is there a tax advantage if one is to set up a forex account in their business name? this would be a NYC corporation.

best regards
  • #151
  • Edited 9:15pm Mar 11, 2007 7:54pm | Edited 9:15pm
Quoting bond007
Hello everyone, is there a tax advantage if one is to set up a forex account in their business name? this would be a NYC corporation.

best regards
A BIG advantage... but set up a LLC with a partner and use a Nevada Corporation for privacy reasons. You don't have to reside in Nevada to incorporate in Nevada.

Also, elect Trader 1256 Status for tax purposes. There are several posts on this subject by using the search feature on the left border.

Good Luck
  • #152
  • Mar 11, 2007 9:12pm Mar 11, 2007 9:12pm
Quoting WHTenn
A BIG advantage... but set up a LLC with a partner and use a Nevada Corporation for privacy reasons.

Also, elect Trader 1256 Status for tax purposes. There are several posts on this subject by using the search feature on the left border.

Good Luck
thank you, will definately have to put some research into that.
  • #153
  • Mar 11, 2007 11:33pm Mar 11, 2007 11:33pm
I couldnt find the answer anywhere i checked about 7 tax related topics here.

Are we taxed on Swap that we get every night from a long position such as the $25 per night GBP JPY carry.

If so, is it both state and federal,or is it just a certain percentage such as 15%. I live in Ny by the way.


many thanks!!
  • #154
  • Mar 11, 2007 11:41pm Mar 11, 2007 11:41pm
Swap is considered part of the profit. It's the equivalent of interest income that you would get in a savings account, I would assume.

Quoting bond007
I couldnt find the answer anywhere i checked about 7 tax related topics here.

Are we taxed on Swap that we get every night from a long position such as the $25 per night GBP JPY carry.

If so, is it both state and federal,or is it just a certain percentage such as 15%. I live in Ny by the way.


many thanks!!
  • #155
  • Mar 12, 2007 7:22am Mar 12, 2007 7:22am
i agree w/ mrmikal... i would consider it profit rite..

anyone else have suggestions?
{ Links Removed }
  • #156
  • Mar 12, 2007 9:15pm Mar 12, 2007 9:15pm
what is a "1256 status as a forex trader"?
  • #157
  • Mar 12, 2007 9:57pm Mar 12, 2007 9:57pm
Quoting nikim
what is a "1256 status as a forex trader"?
I sent you an email that details the 1256 Status for forex traders. You may want to use the search feature on the left side of the forum if you have questions such as this one in the future.

Good Luck
  • #158
  • Mar 13, 2007 10:03am Mar 13, 2007 10:03am
Quoting mdetlh
From what I gather here, the tax book and a broker's web site, I aim for the 1256 status as a forex trader.
I think the last question I have pertains to whether or not I can keep a standard deduction of 6 in the household = about $18000 or if I start itemizing everything once I start trading.(Can I keep the standard deduction and attach the 1256, the 6781?requirements whether I gain or lose from the $5k amount?)
I don't need to worry about trader versus investor status cause I only want to trade forex. So whatever input I get here, I check out with an experienced trader CPA when taxes are due and I won't bother with trying to trade through a Swiss firm.
Thanks all,
If I may weigh in during this long conversation, some of which is accurate, some of which is not. www.tradersaccounting.com has an excelent CD that tells all about the wonderful world of FOREX taxation. You may want to order this so that you have the straight scoop. Many traders on this forum helped us make it with their comments on the Beta version. If you get four traders talking about taxation you generally get five opinions, 3 and 1/2 of which are not completely correct. 03/13/07 Traders Accounting: Jim Crimmins
  • #159
  • Mar 13, 2007 10:12am Mar 13, 2007 10:12am
Quoting bond007
I couldnt find the answer anywhere i checked about 7 tax related topics here.

Are we taxed on Swap that we get every night from a long position such as the $25 per night GBP JPY carry.

If so, is it both state and federal,or is it just a certain percentage such as 15%. I live in Ny by the way.


many thanks!!
Please let me know what you mean by swaps, are you refering to the mark to market which causes you to close your positions everynight, and then reopen them at a new basis? I am ignorant on the terms swaps. Traders Accounting 03-13*07 Jim Crimmins
  • #160
  • Mar 13, 2007 10:16am Mar 13, 2007 10:16am
Quoting Trader Tax
Please let me know what you mean by swaps, are you refering to the mark to market which causes you to close your positions everynight, and then reopen them at a new basis? I am ignorant on the terms swaps. Traders Accounting 03-13*07 Jim Crimmins
Did my own research and that is what you are calling a swap, the interest received or paid will become part of your expense as a trader/investor. as an investor negative interest can only be written of against any positive interest you have. Depending upon what type of business you are trading in you may be able to write all of your interest expense off as a business expense.
0 traders viewing now