Futures Taxes

Gooby · May 16, 2016

What exactly are the tax benefits or downfalls with futures? How and at what rate are they taxed? I've heard very conflicting information on the subject.

Thank you.

recession2016 · May 16, 2016

downside is you can lose a lot/all your money

upside is you get 60% of your gains treated as long term capital gains

http://www.investopedia.com/univers...-to-trading-e-mini-futures/tax-advantages.asp

wartrace · May 16, 2016

Gooby said:
What exactly are the tax benefits or downfalls with futures? How and at what rate are they taxed? I've heard very conflicting information on the subject.

Thank you.

What "conflicting" information have you heard? In my opinion futures is one of the most tax efficient markets for intraday traders.

wrbtrader · May 16, 2016

I think Gooby is in Asia unless I'm getting him mixed up with cashclay or Gloriabrown.

Goodby,

You located in the U.S. or living abroad but still do your taxes in the U.S. ?

nonlinear5 · May 16, 2016

Gooby said:
What exactly are the tax benefits or downfalls with futures? How and at what rate are they taxed? I've heard very conflicting information on the subject.

I assume you are referring to the U.S. tax rules. IRS treats the futures contracts as "Section 1256" contracts.

The tax benefits of the 1256 contracts are:

1. Reporting is much easier. Effectively, instead of reporting every single transaction (as it would be the case with other instruments), you just need to report one combined figure: cumulative gain/loss. There are no "wash sale" or any other nonsense rules.

2. Capital gains (no matter if they were long term or short term) are treated as 40% short term and 60% long term. A typical futures trader holds for much shorter than 1 year. So, this means that although pretty much all of the gains are short-term, more than half of those gains are taxed at a lower long-term rate. The exact tax rate depends on your income bracket.

I am not aware of any disadvantages from the tax perspective.

Gotcha · May 16, 2016

wrbtrader said:
I think Gooby is in Asia unless I'm getting him mixed up with cashclay or Gloriabrown.

I think that after clicking on his profile and seeing he started 7 different questions today all at once, I have to assume that he is in Florida.

nudge nudge... hint hint... wink wink

ScalperJoe · May 17, 2016

nonlinear5 said:
I assume you are referring to the U.S. tax rules. IRS treats the futures contracts as "Section 1256" contracts.

The tax benefits of the 1256 contracts are:

1. Reporting is much easier. Effectively, instead of reporting every single transaction (as it would be the case with other instruments), you just need to report one combined figure: cumulative gain/loss. There are no "wash sale" or any other nonsense rules.

2. Capital gains (no matter if they were long term or short term) are treated as 40% short term and 60% long term. A typical futures trader holds for much shorter than 1 year. So, this means that although pretty much all of the gains are short-term, more than half of those gains are taxed at a lower long-term rate. The exact tax rate depends on your income bracket.

I am not aware of any disadvantages from the tax perspective.

Good points. Also, see the example from Green Trader Tax below regarding the tax if you're in the 10% to 15% bracket. The NET rate is actually much lower, given the benefits of capital gains vs. reporting ordinary income. And the maximum tax rate is 28% for Section 1256 contracts vs 39.8% for ordinary income:

http://www.greencompany.com/trader-tax-center/tax-treatment/section-1256-contracts/

wrbtrader · May 17, 2016

Gotcha said:
I think that after clicking on his profile and seeing he started 7 different questions today all at once, I have to assume that he is in Florida. nudge nudge... hint hint... wink wink

How many times posted in the same day may imply its his/her day off from work.

Regardless, still curious if the person is talking about U.S. taxes or living in another question. I say that because there was another thread like this and after many replies...the person responded again to say he/she lived in Italy and forgot to mention the tax questions involved such.

That's why I always ask what country and if they're talking about U.S. taxes while a legal resident of a country that has different taxation rules. Besides, always best to talk to a certified tax person.

newwurldmn · May 17, 2016

wrbtrader said:
I think Gooby is in Asia unless I'm getting him mixed up with cashclay or Gloriabrown.

Goodby,

You located in the U.S. or living abroad but still do your taxes in the U.S. ?

He's clearly a troll to add clicks.