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Forex Taxes

  • #81
  • Edited 2:38pm May 24, 2006 2:34pm | Edited 2:38pm
Keep track of your losses, they are deductable...... but i'm no accountant. Theoretically, you can operate as a sole proprietor and report your home business expenses without forming an LLC. I formed an LLC because i do not want the IRS disallowing my decuctions. Including my "interoffice commute" expenses. you can write off a lot of stuff, but i'm no accountant.
Quoting fijitrader
Nice handle.

On the subject of paying tax. I like to keep it simple and with trading it does not get much simpler. So, when do you pay tax as a forex trader? Only when you have a profit at the end of the year. To whom does this apply? Very few traders ever have to deal with it.

FT
  • #82
  • May 24, 2006 2:41pm May 24, 2006 2:41pm
Oh yeah, I also want my cable subscription, ISP service, news service, computers, etc. to be tax deductable.

it is legal, the government just counts on people to be too lazy to do it and pay their overweight tax bill. imho.
  • #83
  • May 24, 2006 3:06pm May 24, 2006 3:06pm
I am new to FOREX trading and started by responding to a promotion in the UK that proclaimed that FX trading income was tax-free.


Having lost rather than gained so far and being self employed and wanting to train to make this my living, that didn't look like good news as it would appear that my losses were my own affair and non tax deductable.

The rules here are that gambling income is non taxable.

But...My accountant says that if one is a Trader - defined by the regularity of activity - then income/losses are subject to normal tax rules..

If you occassionally dabble that's different and treated as investment income but losses and expenses are your affair, not tax deductable, if I understand correctly.

Of course one has to seek professional advice but that's at least a bit of a pointer. So my training course, losses, books, subscriptions can all be taken into account, at this stage that's good news.
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  • #84
  • May 26, 2006 3:00pm May 26, 2006 3:00pm
Quoting accrete
Don't take this as advice or anything near it!!!....but....From what i understand about the US tax law it will be difficult for any regular joe to deduct the expenses tied to trading without the legal umbrella of trading under an LLC or a C Corporation. Basicaly it is dificult to take any trading-related expenses unless you are trading full time and have no other source of income...and even then the IRS might find a way to disallow them unless you got the legal entity to trade under.

That is why i trade under an LLC. . . i can deduct all my education, technical expenses (net access, computers, PDA/phone for PAP signals...etc), and other stuff that all adds up to a big deduction at the end of the year.
Hello Accrette,
The following is the answer from the tax office from St Francisco. I had someone who met the tax officer.
In regards to your question about the US Tax Rules:





> >Dear Sir/Madame


> >I am from Switzerland. Our broker firm deals mainly in Foreign

> >Currency Trading - Forex. There are US and many foreign private clients

> >posing us these question. We are asking here only for US citizens.

> >

> >1. Do they have to pay taxes on the profits earned from Forex

> >speculation Trading ? They have a full time employment in the US and trading

> >Forex is only a part time activity when they are back home from work.

> >We told them that in Switzerland Forex is tax free. They ought to

> >declare the profit only to the ( IRS ) US governement. Am I right ?

Michael: That is correct. US citizens have to pay tax on all income, no matter

>where the income was earned (US or in foreign countries). They would

>need to report the income earned from the Forex trading on their annual

>tax returns.

> >

> >2. They have expenses like buying a PC, software and courses etc in

> >order to trade Forex. Can they deduct these expenses from the profit which

> >they will eventually earn?

>Michael: Yes, they can deduct the expenses that are necessary to carry out the

>business. These expenses would qualify.

> >

> >In order to give a CORRECT picture to all our potential US clients I

>would be extreemly thankfull for your help.

> >Thank you in advance and hope to receive your reply.

> >

> >Sincerely Yours

> >Mr Leon - www.hibbiz.com



In Switzerland, every state have their own rules and rate of taxation. Can't say about the US. My advice is check it with your local tax authourities. Ask and get A WRITTEN REPLY to be on the safe side.

Highway
  • #85
  • May 28, 2006 12:40pm May 28, 2006 12:40pm
I am coming from Serbia, and almost a year I have a demo account on VTTRADER platform. In Serbia I do not have any possibility to real trade because there is not any FOREX trader. Now I am trying to find someone who can open a real account for me.
  • #86
  • May 28, 2006 2:19pm May 28, 2006 2:19pm
Quoting forexza
I am coming from Serbia, and almost a year I have a demo account on VTTRADER platform. In Serbia I do not have any possibility to real trade because there is not any FOREX trader. Now I am trying to find someone who can open a real account for me.
Why? You don't need a Serbian broker, do you? You can probably open an account for yourself with a foreign broker or bank. Check out some brokers/banks etc... Talk to the life support (most have a life support) and ask them if they allow people from Serbia to open an account.
  • #87
  • May 28, 2006 3:07pm May 28, 2006 3:07pm
fxkingg said :
Why? You don't need a Serbian broker, do you? You can probably open an account for yourself with a foreign broker or bank. Check out some brokers/banks etc... Talk to the life support (most have a life support) and ask them if they allow people from Serbia to open an account.

From Serbia I can't pay any bill in other currency, except DINAR. That's the low. For example WESTERN UNION exist in Serbia, but I can't send money, I can only receive money from some other country. The same thing is with my bank account. I have account in euros, or USD. From that account i cann't pay, they only allow me to receive money on that account and to use cash.
  • #88
  • May 28, 2006 4:24pm May 28, 2006 4:24pm
Depending where you are in Serbia. Get to the local money market and change your Dinar to Euros or better Swiss Francs. OR Go yourself to Bosnia or Croatia with your Dinars. Take that to Leichenstein and open a bank account. That is a country that won't require you a resident permit to open any account: and most of all it is now the safest in Europe ! ! Never heard about this country ? That is a secret country for the rich. Google to find out more. A few thousand Euro won't give you any trouble to bring accross the border legally.

Once you have a bank account from there, the world is opened for you.

Highway
  • #89
  • May 28, 2006 10:34pm May 28, 2006 10:34pm
Hi all,
Anyone who is from Canada and have been paying taxes for forex earnings?
In foregoing posts I have been reading word LLC.If I understand it is Limited Liability Company! If not plz anyone clarify.
One more question which confuses me.Why we want to evade taxes?If I do not pay tax on any money then it is not white for me.If anyone keeps money in Switzerland then he can use it when he is out of USA/Canada but as soon as money is transfred to local bank,it becomes taxable.
In my view by paying tax , we legally improve our net worth.Anyone can invest money anywhere in the country in purchasing land, property assets, gold etc.
I believe money in bank is not money with you and above all if Bank is foreign.
Real wealth is property which is seldom confiscated whereas gold and money have these troubles as well.
Just sharing my views.
  • #90
  • May 29, 2006 10:53am May 29, 2006 10:53am
Quoting highway3000
Depending where you are in Serbia. Get to the local money market and change your Dinar to Euros or better Swiss Francs. OR Go yourself to Bosnia or Croatia with your Dinars. Take that to Leichenstein and open a bank account. That is a country that won't require you a resident permit to open any account: and most of all it is now the safest in Europe ! ! Never heard about this country ? That is a secret country for the rich. Google to find out more. A few thousand Euro won't give you any trouble to bring accross the border legally.

Once you have a bank account from there, the world is opened for you.

Highway

It sounds great. But, did You mean it's so easy to get outside Serbia. For yourney from Zajecar ( where i'm living ) to Lichenstein I must have transit SCHENGEN visa for the trip. Second, few thousand euro's in Serbia is much more then few thousand euro's in Your country, I suppose. Anyway thank's in Your suggestion, it's good to know that somebody read Your mesage, and he is willing to reccomend a solution for it. Thank's a lot.
  • #91
  • May 29, 2006 11:22am May 29, 2006 11:22am
There are a lot of ex Yugoslavia who left the country before. Many are working in Europe. If you have a relative, ask him/her to put the Euro money in your account in Europe and you can give iback in Dinars to his family in Serbia.

Highway
  • #92
  • Aug 7, 2006 9:26am Aug 7, 2006 9:26am
Does anyone know of a site that I can find out what percentage is paid on money earned investing online in forex?

I don't want to know how much I should be putting aside to pay Uncle Sam at the end of the year.
  • #93
  • Aug 7, 2006 10:01am Aug 7, 2006 10:01am
Here are a couple of general sites:

- http://www.forex-day-trading.com/forex-taxes.htm
- http://themoneyblogs.tradingmarkets....forex-tax.html

Here's a quick summary, though, based on my own experience.

There are two elections a trader can make - 1256 rules or 988 rules. If you don't expect to be profitable in the year, then, you'll want to "elect" 988 rules. Otherwise, elect 1256. 988 rules allow you to write off all your trading losses, whereas 1256 allow you to write off a portion of them.

However, if you will be profitable, 1256 is best. You will be able to split your profits into 2 long term gains categories - short term and long term. 60% of your profits will be taxed at the prevailing long term capital gains tax and 40% will be taxed at the short term rate. For planning purposes, I estimated my long term rate to be 15% and my short term rate to be 35%. Under 988 rules, you will be taxed 100% at the higher rate.

From personal experience, you will need to report every single trade made to the IRS. As of last year, you could attach a spreadsheet to your taxes as long as it was in the required IRS format. This was the biggest pain to reporting, but, definitely worth it in the end. A broker may issue you a 1099, but, it's fairly irrelevant since under the existing rules you cannot simply report and aggregated profit or loss.

Hope this helps. Remember, I'm not a tax advisor.
  • #94
  • Aug 7, 2006 10:12am Aug 7, 2006 10:12am
Quoting stockwet

There are two elections a trader can make - 1256 rules or 988 rules. If you don't expect to be profitable in the year, then, you'll want to "elect" 988 rules. Otherwise, elect 1256. 988 rules allow you to write off all your trading losses, whereas 1256 allow you to write off a portion of them.
Well it's Monday morning so I guess it's an appropriate time for a depressing topic! ;-)

The thing I haven't figured out is if I elect 1256 and say I have the following scenario:

Total annual profit: 40,000
Gain: 70,000
Loss: 30,000

Under 1256 am I paying taxes on the 40,000 or on the 70,000 while deducting only a portion of the 30,000 loss from that?

Squid
  • #95
  • Aug 7, 2006 11:01am Aug 7, 2006 11:01am
Quoting Squid
Well it's Monday morning so I guess it's an appropriate time for a depressing topic! ;-)

The thing I haven't figured out is if I elect 1256 and say I have the following scenario:

Total annual profit: 40,000
Gain: 70,000
Loss: 30,000

Under 1256 am I paying taxes on the 40,000 or on the 70,000 while deducting only a portion of the 30,000 loss from that?

Squid
I believe you would pay on the net gain even though you have to report all the trades. So, you would pay (just using sample numbers) ($40,000*0.6*0.15) + ($40,000 * 0.4*0.35). That's my understanding, though, I'd check with a tax accountant to make sure the loss is accounted for correctly.
  • #96
  • Aug 7, 2006 12:22pm Aug 7, 2006 12:22pm
Thanks for the replies.

I think I should mention that taxes are depressing! It's bad enough paying a spread or commision, not to mention that the government wants some of your money too!
  • #97
  • Aug 7, 2006 12:42pm Aug 7, 2006 12:42pm
Interesting. I wonder how long before EA's and TS' etc... have an Input "MyTaxBracket" = nn% to calculate Net Gain AFTER Taxes.
  • #98
  • Aug 8, 2006 12:37am Aug 8, 2006 12:37am
Bemac, you have any idea how Steven Harper & Co. want to collect forex gains from us?
  • #99
  • Aug 8, 2006 12:48am Aug 8, 2006 12:48am
got a question for you Canadian guys... what exactly is considered taxable here? I guess profit of course, but what is profit?

If gains are unrealized (i.e. they are still in the trading account, so still at risk), then are any of those unrealized gains taxable?

or is it just when you withdraw profits?
  • #100
  • Aug 8, 2006 1:17am Aug 8, 2006 1:17am
Quoting CanadianLoonie
Bemac, you have any idea how Steven Harper & Co. want to collect forex gains from us?
Quoting ycomp
If gains are unrealized (i.e. they are still in the trading account, so still at risk), then are any of those unrealized gains taxable?

Firstly, I am not a CCA so, whatever I say means nothing. Check with Your Accountant.
Some things you do want to look into though would include...

Do not open an account in your Personal name.
Form a company [< $100.00 legal fees]
Open Account in Company Name.
Write off all related expenses. Books, Hardware, Software, Subscriptions [including PF and the likes].
Canada will also allow you to apportion up to 10% of your residence as "Office" Therefore part of your mortgage is Deductble...
Take me to lunch to discuss FX and it's deductable.
So is the gas you used to get there. Part of the vehicle too.

The list goes on and on.
Seriously, get first hand advice from an expert in your local area. It will be worth the expense. [Assuming you are a profitable Trader of course.]
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