Hello. I am new to trading FOREX...have been successfully DEMO trading for 3 months now and I'm planning on 'going live' within the next 6 weeks.
One of the ongoing questions I've been researching is how to declare Forex profits on my US tax return.
It seems that there are 2 IRS rules under which FX profits can fall: Section 1256 and Section 988.
It is my understanding that 1256 allows you to declare 60% of your profits as long term capital gains (taxed at a max of 15%) and 40% of your profits as short term capital gains (taxed at a max of 35%)....leaving us with a combined tax rate of 23%. The so-called 60/40 benefit.
It is my further understanding that, even if you are a day-trader like myself (close all positions at end of each day), you can STILL use the section 1256 60/40 benefit as long as you 'opt out' of using section 988..which is more generous for losses, but taxes ALL profits as short term capital gains at the draconian rate of 35%.
To all you Jedi master traders out there....Does this sound like I'm piecing this together sensibly? How do YOU guys (US based traders) claim your profits?
Thanks in advance for your thoughtful responses!
Ric
One of the ongoing questions I've been researching is how to declare Forex profits on my US tax return.
It seems that there are 2 IRS rules under which FX profits can fall: Section 1256 and Section 988.
It is my understanding that 1256 allows you to declare 60% of your profits as long term capital gains (taxed at a max of 15%) and 40% of your profits as short term capital gains (taxed at a max of 35%)....leaving us with a combined tax rate of 23%. The so-called 60/40 benefit.
It is my further understanding that, even if you are a day-trader like myself (close all positions at end of each day), you can STILL use the section 1256 60/40 benefit as long as you 'opt out' of using section 988..which is more generous for losses, but taxes ALL profits as short term capital gains at the draconian rate of 35%.
To all you Jedi master traders out there....Does this sound like I'm piecing this together sensibly? How do YOU guys (US based traders) claim your profits?
Thanks in advance for your thoughtful responses!
Ric