Taxes For Forex Trading

P

priyanknevatia

Hi,
I have recently started trading forex under my own personal account. I need help with my tax planning. Currently forex trading is my only source of income.

I plan to join a prop firm in Feb 2012 but for 2011 taxes I need help with a software / CPA who could help me file my taxes.

I have been reading about trader's tax and day trader's status and am very confused.

Should I form an LLC for better tax planning next year ? Should I continue trading under my personal name.

Any help is much appreciated. I can also be reached at priyanknevatia@gmail.com since my private messaging has been deactivated by the moderator.

Thanks
Priyank
 
By "day trader status" I assume you mean "pattern day trader" per the SEC. That doesn't apply to forex, only stocks. Maybe you mean "traders status" per the IRS where you get to use mark-to-market accounting etc. But to do it for this year you would have to have already declared yourself that way I'm pretty sure. I don't do it because I'm small potatoes.

I've been treating my forex trading as futures trades as many others are. It seems to best fit the letter of the US tax code. You don't have to list every trade and you get 60/40 long term/short term capital gains treatment.
 
Quote from stevegee58:

By "day trader status" I assume you mean "pattern day trader" per the SEC. That doesn't apply to forex, only stocks. Maybe you mean "traders status" per the IRS where you get to use mark-to-market accounting etc. But to do it for this year you would have to have already declared yourself that way I'm pretty sure. I don't do it because I'm small potatoes.

I've been treating my forex trading as futures trades as many others are. It seems to best fit the letter of the US tax code. You don't have to list every trade and you get 60/40 long term/short term capital gains treatment.
More...

Thanks for your reply. I understand that you have to have declared yourself to benefit from the traders status. How do I do that for next year ?

For this year, since I just started trading sometime ago, what do I do about my profits ? I am making about 20% on my capital in December
 
It is this simple:

Immediately backdate this comment and put in your files to the date you started trading in 2011.

Now....When you file your tax return put this same comment on Form 6781.

Here is the comment:

I have elected out of ordinary gain or loss treatment in irc88 and falling back to the section 1256 contract treatment. I have elected this in advance of my spot forex currency transactions and have noted it in my records.
 
Quote from priyanknevatia:

Hi,
I have recently started trading forex under my own personal account. I need help with my tax planning. Currently forex trading is my only source of income.

I plan to join a prop firm in Feb 2012 but for 2011 taxes I need help with a software / CPA who could help me file my taxes.

I have been reading about trader's tax and day trader's status and am very confused.

Should I form an LLC for better tax planning next year ? Should I continue trading under my personal name.

Any help is much appreciated. I can also be reached at priyanknevatia@gmail.com since my private messaging has been deactivated by the moderator.

Thanks
Priyank
More...

Don't file.
 
Quote from priyanknevatia:

...what do I do about my profits ? I am making about 20% on my capital in December
More...



Dude, get yourself TurboTax Premier first. If you trade stocks, options, futures, own rental properties etc it's the best version for you. I trade option spreads and Premier is the only version that understands the concept of "shorting" anything. The cheaper versions assume your trades are long-only and you have to override the fields with negative numbers to make it work. Get Premier.

Under "Contracts and Straddles" select "Section 1256 Contracts Marked to Market". The IRS form is 6781. TurboTax automatically splits the gain 60/40 long term/short term for you.

This is the same process for trading futures like ES, YM etc. You can do all this (mark-to-market etc) without trader status for futures. Trader status applies to stock trades. It's useful if you're a stock day trader and have thousands of stock transactions per year. In your case it doesn't apply unless you're doing stock trading too.
 
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