Trading the eMinis has some fantastic tax benefits. The first benefit is that eMinis are classified as a IRC 1256 contact. As a 1256 contract the net capital gain or loss from your trading will be divided into 60% long-term and 40% short-term regardless of your actual holding period. Therefore, if you have a net gain from trading eMini's 60% of the gain will be treated as a long-term capital gain and will be taxed at a maximum 15% tax rate.
Another tax benefit you receive from trading the eMinis is that you do not have to account for the wash sale rule. The wash sale rule basically states that if you sell a stock at a loss and buy replacement stock 30-days before, or 30- days after the sale of the same stock, you canât deduct the loss. This rule does not apply to gains but only to losses. Naturally, the IRS wants to tax all of your gains. Typically Traders have a much harder time keeping records relating to wash sales because they engage in so many transactions so having the ability to not worry about this is a great advantage.
The next tax benefit of trading the eMinis is the ability to make an election to carryback a loss (up to 3 years) to a year that you had gains from trading the eMinis. When you carryback the loss you can amend the prior year tax return and apply for a refund. Any loss that you were not able to carryback and use in a prior tax year would be carried forward indefinitely until it is use up.
The finally benefit of trading the eMinis is the fact that you do not need to provide the IRS a list of all of you trading activity at the end of the year. The net gain or loss from your trading would be reported on a Form 6781 without the corresponding detail.
