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Tax issues

Discussion in 'General Forex Talk' started by Teresa, Mar 10, 2008.

  1. Teresa

    Teresa Private

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    Taxes - a subject everyone loves to hate.

    I have a demo account now, but will soon open a live account. I need to keep track of all my trades for tax purposes.

    Does anyone out there have a suggestion for how to do that? Is there reliable software for it? If not, what are you all doing???

    Thanks so much.

    Teresa
     
  2. Pharaoh

    Pharaoh Colonel

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    Most brokers send out statements every so often (mine sends me Daily and Monthly statements). Also, some trading platforms will let you print out statements for time periods you chose.

    Yes, it's a VERY good idea to keep records. Print out each month's statement in case something happens to the files at your brokerage.

    If everything goes ok. it should be possible to print up a year end statement showing how much you started with, added, withdrew, and ended with. That's really all you should need to figure your yearly profit/loss for taxes (unless you are doing something ... complicated - if so, you might want to consult an investments tax specialist).
     
  3. Nick77

    Nick77 Private

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    What is the percentage taxed on profits?
     
  4. Teresa

    Teresa Private

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    Thanks!

    Thanks, Pharoah!
     
  5. Pharaoh

    Pharaoh Colonel

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  6. Nick77

    Nick77 Private

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    I read that but I am still confused. Can you please explain 60/40? What percent does the average forex day trader have to pay on his profits?
     
  7. Pharaoh

    Pharaoh Colonel

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    This is where we need Black Knight and a team of tax professionals. As I read it, if you go the 60/40 route, 60% is taxed at one rate and 40% is taxed at another. As for what the rates are, I think it might depend on what tax bracket you are in.

    Alternately, you can try to deal with them as ordinary losses/gains - apparently better if you lose money. The problem is that the IRS might not look kindly on switching back and forth each year based on how well/poorly you did.

    Beyond that, I am way out of my depth here. For my taxes, I think I'm just going to dump a pile of papers on an accountant's desk and say "fix this".
     
  8. Teresa

    Teresa Private

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    Using 60/40 tax rule for spot

    MB Trading has a section on their website called Tax Tips for Traders. There, they say that the 60/40 split (under Section 1256), which enables you to pay (lower) long term capital gains tax on 60% of your earnings and short term capital gains tax on the other 40%, was really designed for forex futures traders. If you trade on the spot market, you would normally be taxed under Section 988, at ordinary interest gains rate. So the 60/40 is better. Though it wasn't designed for you, as a spot trader you can "internally" note your intention to opt out of Section 998 and opt in to Section 1256 instead. You do not have to tell the IRS about your decision beforehand.

    Apparently this is the thing to do if you have gains -- you can save 12%. But if you end the year with losses, you're better off under Section 998. So maybe your "internal intention" is, uh, actually different from what you thought you remembered. So far, the IRS isn't poking into people's intentions.

    Confused? Check out the MB Trading site. They can explain it better than I can. I am not a tax or financial advisor, that's for sure.

    Also, there's a book called The Tax Guide for Traders by Robert A. Green (published in 2004.) Has anyone purchased this? If I end up getting it, I'll let you know if it is useful.
     
  9. Nick77

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    Thank you both very much. I need an accountant like Pharoah. Maybe i'll get one someday, when I make my millions....
     

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