Most people think that forex trading is about making a profit and do not think about a crucial thing like forex tax USA. They are aware that losses and profit are part of the deal, and also, they think it is about growing an account.
However, successful traders not only grow their account with a reliable broker like Didimax forex broker but also think about long-term consequences. One of the consequences is tax.
Taxes on Futures Traders and Forex Options
Futures contracts and forex options are a part of IRC 1256 contracts. It is for tax purposes. 60% of losses or gains will be counted as long-term capital losses or gains and the remaining 40% is short-term losses or gains. Before starting trading, prospective forex traders should know the tax implications.
1. Forex options and futures are 1256 contracts and the tax is based on the 60/40 rules aforementioned.
2. Forex spot traders reduce their losses as they are considered 988 traders.
3. On the spot market, currency forex traders can choose between the special rules of 98 IRC and regular commodity contracts of 1256.
For people with high-income tax, 60/40 tax treatment is advantageous. When trading options or futures, the tax for investors is at a rate of maximum long-term capital gains.
Forex Tax USA, Choosing the Contract
For forex traders, the trickiest part is to decide how to file taxes. OTC are grouped separately but there are two options for investors to choose 988 or 1256.
The IRC 1256 contract is more complicated than the IRC 988 contract. Also, for both losses and gains, there is a constant tax rate which makes it better when traders need to report losses.
However, although 1256 is more complex, it gives you 12% more savings if you get net gains. Before investing in forex trading with the best forex broker, it is better to discuss with your accountant.
Keeping Track
Tracking loss and profit can be done in the most common means which is the brokerage statement. However, a tax-friendly and accurate way to track loss and profit is your performance record. The IRS formula below can be used.
1. Subtract your starting assets from your ending assets
2. Increase your account withdrawals and reduce cash deposits to your account
3. Add interest rate paid and reduce interest income
4. Make any other additional trading fees
Your record performance can be achieved by the above formula. You can get an accurate picture of the loss or profit ratio that makes it easier to fill the year-end tax.
Things to Be Considered
When it comes to forex tax USA, there are some things to remember. The following things are key points to note.
1. Deadline
In some cases, you need to choose a tax type with a situation by January 1 of each. Before doing any trade, if you are a newbie, you can choose this decision at any time.
2. Good record keeping
During tax season, good record keeping will keep much time. This means your time can be invested in trading and not run around taking care of your paperwork.
3. Pay up
Some traders try to beat the system and to be smart by not paying forex tax USA. They thought that they could get away with it because of the CFTC (commodity futures trading commission).
However, it is better to pay the tax dues on time. Eventually, no matter what you did, you will end up paying the taxes.
Whether you just dabble a bit on your trading or make it your career, take some time to correctly file your taxes. However, everything will be easy by choosing a
professional broker like Didimax.
We are a regulated broker in Indonesia that you can trust. You can choose many trading instruments such as forex. Trade with us and understand forex tax USA.