I have a situation regarding foreign currency transaction and although I’ve thoroughly read through all the articles in regards to how to report gains/losses on your tax return, I’m still a little confused and wondered if you could clarify for me.
I trade with forex.com which is on the spot market I believe, and unfortunately I had large losses last year. I was not aware of IRC 988 and section 1256 until this week when I was preparing my 2008 tax return. I use TurboTax to prepare my tax return and I reported these losses on form 6781 which then put them onto Schedule D which reports them under section 1256 (60% long term, 40% short term), with the $3000 loss limitation. I had a few thousand dollars in losses this year as well (I’m obviously not cut-out for forex trading) and upon further research, I understand that by default, these losses should be reported under IRC 988, unless you opt to report them under section 1256 (which I did not know last year).
Forex.com issues me 1099-B forms.
DILEMMA
a) How do I elect under section 988 because when I use turbo tax and put my losses on From 6781, it defaults to section 1256 and just puts my losses on Schedule D along with the Investment gains/losses. I read from your article that you just have to have it in your records that you are electing under section 988, but how do you do that? Just write it on a piece of paper?
b) Is there any time limitation to elect under section 988, I’m reading that whether you elect under section 1256 or section 988, it has to be done in advance or something, not after the fact after you know if you have gains or losses, is that correct?
c) As mentioned above, I had losses LAST year as well, but was unaware of this section 1256 and section 988, so turbo tax defaulted my losses to section 1256 and was included on Schedule D with the 60/40 split of long-term cap gains and short term cap gains. Can I amend my 2007 return to elect under section 988 and claim all my losses against ordinary income, thus receiving more refund for 2007 instead of being limited to just $3000 loss against ordinary income?
d) If I am able to elect under section 988, what supporting documentation do I need to show to avoid any red-flags that could potentially trigger an audit or question?
Thanks for any information and clarification anyone can provide.
I trade with forex.com which is on the spot market I believe, and unfortunately I had large losses last year. I was not aware of IRC 988 and section 1256 until this week when I was preparing my 2008 tax return. I use TurboTax to prepare my tax return and I reported these losses on form 6781 which then put them onto Schedule D which reports them under section 1256 (60% long term, 40% short term), with the $3000 loss limitation. I had a few thousand dollars in losses this year as well (I’m obviously not cut-out for forex trading) and upon further research, I understand that by default, these losses should be reported under IRC 988, unless you opt to report them under section 1256 (which I did not know last year).
Forex.com issues me 1099-B forms.
DILEMMA
a) How do I elect under section 988 because when I use turbo tax and put my losses on From 6781, it defaults to section 1256 and just puts my losses on Schedule D along with the Investment gains/losses. I read from your article that you just have to have it in your records that you are electing under section 988, but how do you do that? Just write it on a piece of paper?
b) Is there any time limitation to elect under section 988, I’m reading that whether you elect under section 1256 or section 988, it has to be done in advance or something, not after the fact after you know if you have gains or losses, is that correct?
c) As mentioned above, I had losses LAST year as well, but was unaware of this section 1256 and section 988, so turbo tax defaulted my losses to section 1256 and was included on Schedule D with the 60/40 split of long-term cap gains and short term cap gains. Can I amend my 2007 return to elect under section 988 and claim all my losses against ordinary income, thus receiving more refund for 2007 instead of being limited to just $3000 loss against ordinary income?
d) If I am able to elect under section 988, what supporting documentation do I need to show to avoid any red-flags that could potentially trigger an audit or question?
Thanks for any information and clarification anyone can provide.
. I'm sexually liberal and have a big mouth - I don't think they tolerate my sort.
... just stick to tested and reliable monaco boys, with western society values. cuz as tolerant as I'd like to believe I am, they are stuck way back in 11th century. this one's my favourite: '' If you’re thought to be supplying drugs you could face automatic life imprisonment.'' - automatic XD, like going to take a p*ss every morning automatic, or checking charts... its like that. no wonder its 0%, I wouldnt go there if there was +10% to my net gains directly from Sheikh's vault... :| damn
