Forex Trading Income: how is it taxed?

for the United States..

How is Forex trading income taxed? If I do have a an income where do I report it and if I have a loss, where do I report it? (as in what forms)

thanks

Thanks for taking the time to begin the thread BigGold. I've been trading full time since July of last year. My trading account is my primary source of income and will have to be taken into consideration when filing my taxes.

I hope anyone on the site with any advice will take the time to share it here.

I did come across this for what it's worth:

http://www.greencompany.com/Traders/Guides.shtml

Appreciate it Eggs... I tell you what I did, I do my own taxes so I filed a schedule D with form 8949 attached. I used 8949 to record the Forex and stock trades, then tied that back to the schedule D which is filed with the 1040. I do not know if this is correct but after much research and reading, this is what I feel most comfortable doing. Again, I do not know if its right but that what I am turning in.

Because Forex falls into the commodity arena, it should be reported on form 6781: Gains and Losses from Section 1256 Contracts and Straddles. It will allow you to claim 40% short term capital gains/loss and the balance is 60% long term gains/loss.

I am not a tax authority and highly recommend you consult a CPA.

Thanks to the both of you for the info. I'll be watching the thread closely hoping other traders might be willing to give advice.

Cheers

Hey there. Do you care to explain the short & long term & 60/40 rule a little more in depth? Please.

I've got a few questions:

At what point was a taxable transaction (offer, acceptance and consideration) instantiated?

Where did the transaction take place?

Who were the principle participants in the transaction?

What triggered the taxable assessment and how was it created?

When did the taxable assessment occur?

Who has the authority to collect the assessment that was created?


No tax is owed, due and/or payable to the IRS, absent the legal authority to levy a tax. The tax assessment cannot exist unless the taxing authority issues that assessment. And, no declaration that a tax return obligation can exist, unless that return would report taxable income that the IRS has the legal authority to collect.

The 16th Amendment is clear, Congress does have the authority to levy taxes on individuals, where income is derived in the United States. This also makes it more clear, why Congress has taken away the U.S. Citizens right to control their own capital and trade on overseas platforms. U.S. Citizens, are not forced to trade on U.S. based platforms, if they are Retail Forex Traders. If you are an Institutional and/or Commercial Forex Trader, then you can conduct trading business on foreign based execution platforms, by way of having a foreign based trading account.

This gives some insight into why the new regulations probably went into effect, and it goes to the heart (I believe) of my statement above, that the government cannot tax your income from Trading the International Currency Markets, if those transactions never occur on United States soil.

Stocks and Commodities have central clearing and those clearing houses are U.S based entities, so the reporting requirements fall on their shoulders and typically a 1099 gets distributed. But, where is the "central clearing" on a currency transaction? Where is that place located exactly? How is that transaction reconciled and who was the counter-party to your transaction? Where was the transaction settled?

These an other very important points about jurisdiction were probably in the thoughts of those who supported Dodd/Frank.

If the IRS deems you to be an "Investor," then they treat you one way. But, if they deem you to be a "Trader," then they treat you like a Sole Proprietor, running a business. But, this has all been stipulated as being "true," for those traders engaged in trading stocks, bonds and commodities. There is no such clear direction for trading International Currency Units - probably for some of the reasons that I cite above.

So, if your broker does not worry about it, and they do not send you a 1099 (I've never received one from my broker), then the question of whether or not you even have a legal duty/responsibility to pay any tax at all, is very much still in question.

If your broker does send you a 1099, then most likely you will be going the IRS 8949 route with a Schedule D. Remember, Mark-to-Market has no application for the Forex trader, so you don't get to use losses as a deduction in the same way - unless of course, the IRS applies Mark-to-Market rules to your Retail Forex trading and how likely is that.

For me, right now, it all hinges on whether or not I even get a 1099. In the past, many Forex brokers did not issue a 1099, and many of them were foreign based retail Forex brokers. Many U.S. based retail Forex brokers never sent one out as well an some still don't today.

Again, if there is no authority, because there is no return, and there is no return because there is no official source document for income/losses - then there cannot be a legal tax liability.

Of course, seek advice from a qualified tax attorney and/or CPA.

BTW - you are better off finding a way to get out of retail Forex trading entirely (if you are a U.S. resident/trader) and trading on a non-U.S. based platform, that has no reporting requirement to the IRS.

Again, if the IRS has no authority by law, then it cannot demand reporting from the intermediary. If that intermediary does not, or cannot issue a statement of income, then no income/loss source documented has been generated and thus, you have nothing to file - literally.

It is a loophole and Congress will always place one of those somewhere, so their campaign contributors can continue to finance their careers as legislators.

Dodd and Frank, making more sense now? Well, it sure should. They simply wanted to gain yet another source of what they believed to be "revenue" for themselves. And, they cloaked their entire game under a false mask of Consumer Protection Regulations. They cannot force foreign entities willing to walk away (Forex brokers and intermediaries) to report U.S. based tax forms.

And, most should find this link rather informative about the matter of Taxing Forex Income: http://greencompany.com/EducationCen...Currency.shtml

Aside from that, I probably have nothing further to add.

The U.S. can and does tax expats who make income in another country.

http://www.irs.gov/businesses/small/international/article/0,,id=97324,00.html

So lets say I have an account with finpro based in U.K. as my broker. But I live in the states. If they do not send me a tax form, then I owe no u.s. taxes? Not paying taxes seemslike a great way to get on the radar of the irs...