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Taxes & Forex

  • #21
  • Nov 2, 2010 4:27am Nov 2, 2010 4:27am
Quoting The Fool
cool, that's good to know, thanks, Slack. For $37 probably not a bad deal at all & I don't think there's anything else like it out there anyway....
Yea, it was invaluable for me... huge help. BTW, their customer service kicks ass. I sent them an email on a Friday around 2am because I was having problems accessing the website. I had to file like the next business day. They replied over the weekend with the answer I needed.

They are good people, and best of all, understand trading.
  • #22
  • Nov 2, 2010 10:29am Nov 2, 2010 10:29am
Quoting The Fool
cool, that's good to know, thanks, Slack. For $37 probably not a bad deal at all & I don't think there's anything else like it out there anyway....
Exactly!
Hindsight is 20/20
  • #23
  • Nov 2, 2010 12:19pm Nov 2, 2010 12:19pm
NeoRio, what year was the forex loss we are talking about?
  • #24
  • Edited 10:37pm Nov 2, 2010 5:56pm | Edited 10:37pm
I'm a forex newbie in California. I've been trading full time this year as a day trader. It looks like I might have a net loss this year. I'd like to form a business entity to offset my losses from my spouse income.

I've learned that filing as sole proprietor could raise too many red flags since IRS doesn't like to see schedule C losses.

What do you guys think about General Partnership entity instead of LLC? GP is cheaper to set up, and I don't need liability protection in the foreseeable future.

Thanks in Advance!
  • #25
  • Nov 2, 2010 6:56pm Nov 2, 2010 6:56pm
when i signed on to forex.com broker , i signed an agreement with them that im not allowed to pay tax on forex its against the law that said in the agreement,is that true,no tax for forex,and im from australia,could anyon help me out with forex profits tax law in australia,if im gonna have to pay tax ,theres no point even living here anymore,ill just move to cyprus and pay zero pay or minimal ,hahaha lol,warren buffet said that he pays less tax than his secretary,yep i reckon that could be true ,only thing is how,


tis guy here,is a milionaire and pays very low tax nealy tax free ,because he owns more than 4000 units ,the gov says hes helping the people,helping lol?more like ripping them off


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  • #26
  • Nov 3, 2010 1:44am Nov 3, 2010 1:44am
Quoting NaFooTrader
I'm a forex newbie in California. I've been trading full time this year as a day trader. It looks like I might have a net loss this year. I'd like to form a business entity to offset my losses from my spouse income.

I've learned that filing as sole proprietor could raise too many red flags since IRS doesn't like to see schedule C losses.

What do you guys think about General Partnership entity instead of LLC? GP is cheaper to set up, and I don't need liability protection in the foreseeable future.

Thanks in Advance!
Questions exactly like these (and many more) are answered in the book previously mentioned. I hate to harp on it again, but please check it out.

I would try to answer your question myself, but there are so many little caveats that can affect your situation (all explained in... you guessed it: the book.)
Hindsight is 20/20
  • #27
  • Dec 26, 2010 7:36am Dec 26, 2010 7:36am
I'm in New York and in one calendar year if I put $50K in a US broker and grow the account to 100K but only withdraw $25K. Do I only pay taxes on the 25K I withdrew to my bank or do I pay taxes on the full $50K increase of the brokers account?
Thanks in advance.
  • #28
  • Dec 26, 2010 12:24pm Dec 26, 2010 12:24pm
Quoting philn
I'm in New York and in one calendar year if I put $50K in a US broker and grow the account to 100K but only withdraw $25K. Do I only pay taxes on the 25K I withdrew to my bank or do I pay taxes on the full $50K increase of the brokers account?
Thanks in advance.
Hi, you pay taxes on your net forex profit. Withdrawal has no bearing.
  • #29
  • Dec 26, 2010 1:32pm Dec 26, 2010 1:32pm
Quoting Rob Mondave
Hi, you pay taxes on your net forex profit. Withdrawal has no bearing.
Really??!! I've always heard it's only what you withdraw from your account (of net profits) that you pay taxes on. I have a friend who withdraws from his account each month. He always leave's $12,000 in his IBFX account (after withdrawal). If his withdrawal is more than he needs that month for his living expenses, he puts the extra into investments so that he doesn't need to pay taxes on that money either.

NeoRio
Sentiment: Short on cash. Long on hope.
  • #30
  • Dec 26, 2010 1:43pm Dec 26, 2010 1:43pm
Quoting NeoRio
Really??!! I've always heard it's only what you withdraw from your account (of net profits) that you pay taxes on. I have a friend who withdraws from his account each month. He always leave's $12,000 in his IBFX account (after withdrawal). If his withdrawal is more than he needs that month for his living expenses, he puts the extra into investments so that he doesn't need to pay taxes on that money either.

NeoRio
According to multiple IRS agents (telephone confirmations) and my accountant, it's your net profit. I send the IRS (per their requirements) a printout of ALL of my year's trades - when I used to day trade it was about 10lbs of paper - now it's just a page or two. Unless the three or four IRS agents and my accountant are all wrong, this is the way it is.

Rob
  • #31
  • Dec 26, 2010 1:47pm Dec 26, 2010 1:47pm
Quoting NeoRio
Really??!! I've always heard it's only what you withdraw from your account (of net profits) that you pay taxes on.
profits are profits whether you withdraw them or not. You are taxed on your profits.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #32
  • Dec 26, 2010 1:53pm Dec 26, 2010 1:53pm
Stocks, Futures, Forex...

Capital gains are capital gains....once you close a trade and it makes a profit, you have a tax liability. (losses offsetting)

If you invest... purchase and don't sell.... then you don't owe any taxes
until you sell and take your profit.

(Obviously, this can become more complicated/complex).

Thankfully, forex tax reporting is much simpler (in the US). Equities, like Rob said....can be time-consuming.

edited: just like TheFool said above... I was a little late.
  • #33
  • Dec 26, 2010 4:07pm Dec 26, 2010 4:07pm
Rob Mondave is spot on: in the US, any withdrawals or deposits have absolutely no impact on your forex taxes at year end. Only the net gain/loss (realized, for most traders) for the year matters.

In practical terms, your year-end net gain/loss, calculated separately for each forex broker account, is simply:

Net gain/loss =
ending realized account value
- beginning realized account value
+ combined withdrawals
- combined deposits
- net (positive reported, if any) interest.

Note that it's strictly up to you, the trader / taxpayer, to do all the calculations and report the numbers accurately on your tax returns. Until the US tax code catches up to retail forex, it's a full honor system, for better or for worse...

Now, report net gain/loss either combined across all forex accounts on Line 21 Other Income (if using IRC 988), with an optional but recommended statement showing net gain/loss by account; or separately for each forex account on Sch. D (if using IRC 1256).

Realized account values is what you must go with, as long as you have not made the MTM (marked-to-market) election, as is the case for most individual non-professional traders.

Positive 1099-INT forex interest is reported separately for each broker and separately from your net gain/loss with that broker -- you don't want the IRS and your state tax agency to automatically red-flag your return for missing known broker-reported interest. Like all interest, it's reported on 1040 Sch. B and flows to Line 8a, Taxable Interest. Deduct that positive reported interest in the calculation of net gain/loss above, so that the interest is not double-taxed, of course.

Negative forex interest need not be separated from gain/loss, because there is no form 1099-INT and therefore no corresponding entry on Sch. B for you to worry about matching with IRS / state computers.
  • #34
  • Jan 25, 2011 4:21am Jan 25, 2011 4:21am
If anybody needs Tax Free forex money let me know.
  • #35
  • Jan 25, 2011 12:37pm Jan 25, 2011 12:37pm
Quoting honestb
If anybody needs Tax Free forex money let me know.
Sure, I do.

NeoRio
Sentiment: Short on cash. Long on hope.
  • #36
  • Jan 27, 2011 10:07am Jan 27, 2011 10:07am
Quoting nhct
Now, report net gain/loss either combined across all forex accounts on Line 21 Other Income (if using IRC 988), with an optional but recommended statement showing net gain/loss by account; or separately for each forex account on Sch. D (if using IRC 1256).

Realized account values is what you must go with, as long as you have not made the MTM (marked-to-market) election, as is the case for most individual non-professional traders.
Just clarifying here that section 1256 contracts have their own MTM treatment built in, and that it is usually advantageous to opt-out of Section 988 if you are trading FX due to the 60/40 tax split advantage with section 1256 treatment.
Hindsight is 20/20
  • #37
  • Last Post: Jan 30, 2011 8:04pm Jan 30, 2011 8:04pm
Quoting honestb
If anybody needs Tax Free forex money let me know.
My friend is a forex manager and his trading performance is average 42% per annum no compounded for past 13 years. Also income from his investment company is tax free. So the final profits received by his investors are high.

The profit is 15000% to 20000% compounded after 15 years if a investment company pays average profit of 40% to 45% per annum for 15 years, The trading performance of 10 years and more is important to determine whether a investment company is long term profitable company.
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