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Home » Online Forex Trading Blog » Forex Taxes

Forex Taxes

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One of the most exciting things about trading is seeing that first profit. That rush of excitement can be euphoric, until April 15th gets closer. The thrill of being profitable starts to turn to panic as you have no idea how to file taxes.  We absolutely suggest speaking to a tax professional, but we here at Online Forex Trading, want to give you a head start to try to help ease some of your April anxiety. You can visit our Forex Trading and Taxes guide for a more complete breakdown.

How are Forex Transactions categorized?

Depending on the instance, some forex transactions are categorized under Section 1256 contracts while others are treated under the Section 988 – the Treatment of Certain Currency Transactions.

By default, all forex contracts are subject to the ordinary gain or loss treatment. Traders need to “opt-out” of Section 988 and into capital gain or loss treatment, which is under Section 1256.  Section 1256 provides a 60/40 tax treatment which is lower compared to its counterpart.
Every trader in the United States is required to pay for his or her forex capital grains, so there is no use trying to get out of it.

PAYING FOR FOREX TAXES

Once you know what to file, the actual filing itself isn’t hard. Most US-based forex brokers will provide a 1099 at the end of the year. For international brokers, and the larger US brokers who do not provide 1099s, you should be able to print an end of the year statement to show your profits and losses for the year. Getting professional tax advice is recommended as well.

HOW TO OPT OUT OF SECTION 988

As mentioned earlier, all forex contracts are subject to ordinary gains or loss treatments.  If a traders wants to opt out of Section 988 and into capital gain or loss treatment, the need to keep an “internal record” as the IRS does not really require a trader to file anything in order to officially opt out.

General Information

There is nothing inherently difficult about paying for forex profits. However, as this trading becomes more popular, the IRS is likely to come up with additional measures that will regulate the trade. But if there’s one piece of advice you should take from this, it’s to always pay your taxes.
For links to the appropriate tax forms, forex tax forum resources,  and additional information, please visit our comprehensive forex tax guide in our learn forex section.

Disclaimer: We are not accountants nor are we trying to represent them. We have gathered all of this for informational purposes and we strongly suggest seeking the help of a tax professional.

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About the Author -

Rosanne started has been in the financial services industry since 2005. She is currently applying her knowledge about banking and finance to the currency industry.

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