I give up. This tax stuff isnt made for me and I wish I could find a tax addvisior to take my woes away.

I bought the "The Tax Guide for Traders" and I'm so lost in this book. I cant make heads or tails out most of what the book takes about, most because it doesnt pertane to me.

I lost about a grand or a little more on FXCM spot exchange on the forex but I cant figure if I should cliam the lose. Should I throw it out since is such a small amount? At first I made 200 off of my first 1000 and then it tanked, Is that 200 and the other gains I made something to consider? I know about the 988 and 1256 but I dont know how to write it all up on my taxes. The books show that its out there but it goes into some hardcore stuff and then I'm lost. Is there a "got a small lose on your taxes from the forex and you got one day to file" book. Thats what I need.

Thanks,
Matt

Why bother with tax books, let a professional do your taxes - it's cheaper and far more convenient! If you want to fly in an airplane you don't start reading a book either to fly it, you hire a pilot.
Frank

Thanks for buying my book "The Tax Guide for Traders." It covers trader tax for securities, futures, commodities and forex traders.

There are examples for forex traders in our companion "2006 GTT Guide: 2005 Tax Return Examples for Commodities, Futures & Forex/Currency Traders (Individual and Entities)" available at http://www.greencompany.com/Traders/Guides.shtml.

See updated Forex Tax content on our site at http://www.greencompany.com/Educatio...Currency.shtml

Simple Answer to your question.

If you did not elect out of IRC 988, then report your forex trading loss in summary form (the net amount) on line 21 Other Income (Loss) of Form 1040. That's the last line above Gross Income.

There is no capital loss limitation of $3,000 (from Schedule D) that applies on forex ordinary losses.

If you elected out of IRC 988, then you report the forex gains or losses the same as futures gains and losses on Form 6781 (the 60/40 form).

It's that simple. Thanks.

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Thanks for reply so quickly! Ok.. I'm still a little lost. I know my situation should be pretty easy but you mentioned Schedule D. Do I need to do a Shcedule D. If so, do I need to fill out Part I of Schedule D and how do I fill in the forex information in lines 1 through 7?

I know that might be asking alot but I'm think I going to have to miss the deadline on Missouri's Extension Date to figure this out. I hope I dont get in too much trouble. I cant find on Missouri's web sites if I can delay on my tax return or what would happen to me. I dont owe anything so I'm not sure.

Thanks to all!
Matt

Hi,

I ‘m also confused by tax implications. I need to buy your book, or perhaps hire a CPA going forward. I am already filed for this year, and am looking to handle tax situation more efficiently next year. In summary: First year, lost about $1000, did not report the loss, do to uncertainty about how. Second year, made $2200. Reported it as capital gain on Schedule D per Publication 525 (Miscellaneous Income) - page 28 (Other Income) -Paraphrased: “…Must report profits from exchange rates in excess of $200 as Capital gains…” Third year, (2006, to be reported in 2007) I’m showing solid gains, and hope to increase b-4 year’s end. My plan was to report them as Cap. Gains, just as last year. Then, beginning Jan 1st 2007 would like to restructure as “self-employed” or whatever it takes to minimize tax burdens going forward, assuming my trading continues to have legs. I’m sure there are dozens of angles a CPA would know about, that could be useful. Any thoughts to point me in the right direction greatly appreciated.

I'll check the links you provided for more information...

Your help greatly appreciated.

Regards and I reply to the last 2 posts.

Schedule D is not used directly by forex traders. By default, reporet spot and forward forex on line 21 of Form 1040, Other Income (Loss).

Only if you elected out of IRC 988, do you instead report forex trading gains and losses on Form 6781.

Form 6781 is then transferred 60/40 to Schedule D; 60% long-term and 40% short-term.

Doing anything else invites tax trouble.

Trader tax status only affects business expenses, not where forex trading gains and losses are reported.

Use our guides and/or consider our preparation services. Thanks.

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Thanks, GreenTrader Tax.

I wish I'd had this chat last April!

I'm saving above discussion for next year's preperation, and will continue to look at preperation more closely.

--The Sniper.

good thanks.

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http://www.learncurrencytrading.com/...ost72864<br />

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Jim

Hi GreenTrader Tax,

I've begun reading your articles and am starting to feel enlightened, and am able to make some assumptions. I hope they are correct. I will review your site more closely, a great resource.

I trade spot forex, only. At my current level of income (job + forex) I would remain in the ~20% tax bracket at year‘s end. I think that means if I don't opt out of IRC 988, forex will be taxed at my ordinary rate of ~20%, which is marginally better than if I used 60/40. (Based on 60 @ 15% and 40 @ 35% - not sure if that is correct, just an estimate).
Therefore, IRC 988 might be the best for me at this time?

I hope that in 2007 I will make enough forex $ to bump up in tax bracket. Then it might be prudent to have opted out of IRC 988?
Is it possible for an Individual tax filer to contemporaneously opt out of IRC 988? And, if so, how do I prove/do that? Or with my current Non-trader tax status, would I be stuck with IRC 988?

I’m guessing that opting out of IRC 988 is a benefit of "Trader" status, and there might be other benefits, too. This is another avenue of confusion that I will seek more info. Next April should be much less confusing than past.

Thanks-
Sniper.

International Tax

U.S. citizens and/or residents (green card holders or physically present in the US) owe taxes on worldwide income.

You must report your forex trading gains or losses on your US and state income tax returns, whether your forex broker is located in Switzerland or in the US.

I like to say Isle of Jersey (a tax haven off the coast of England) or New Jersey, it makes no difference.

Read my article on Global Tax for Traders here http://www.greencompany.com/Educatio...lTraderTax.pdf.

Forex is for the most part an unregulated market. But US FCMs (brokers) are highly regulated. Consider that some offshore FCMs may not be regulated in the US and that can matter if you have deposit or other problems.

Thanks.

Thanks.

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forex tax rates with IRC 988 versus electing out of IRC 988 for 60/40 treatment

60/40 tax rate treatment is almost always better than ordinary income tax rates. 60/40 also takes advantage of the lower marginal rates, so your assumption Sniper above is a little off.

Both long term and short term (ordinary rates) are subject to graduated rates, so at lower income levels 60/40 is less than the maximum blended rate of 23%; on the same pro-rata reduction basis.

So with gains, it is almost always better to have elected out of IRC 988 on forex trading.

Thanks

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forex tax versus trader tax

You don't need trader tax status to elect out of IRC 988; any investor or business trader can make this election.

If you have gains, you want to elect out for the lower 60/40 tax treatment.

If you have losses, it's better to keep the default ordinary loss treatment on forex, so your losses are not limited with the onerous capital loss limitations (of Schedule D).

The election is usually made for the year on a contemporaneous basis; not after the fact with hindsight (the IRS dislikes hindsight). The election is made internally within your own books and records - that's helpful!

The election rules are a little vague.

Thanks.

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Hi GreenTrader Tax,

Does this mean one should make the election on the first day of the year? For example, for 2006 tax return, the election should be done on Jan. 1, 2006, before yearly gain or loss can be determined. Am I understanding this correctly?

How can one make an election? Can one write a statement such as the following?
------------------------------------------------------------------------------------
I, Uncle Sam, am electing out of IRC 988 for the gain/loss of my 2006 forex spot trading.

Uncle Sam (Signature)
Jan. 1, 2006 (Date)
------------------------------------------------------------------------------------

Your feedback is really appreciated. Thanks.

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Plan each trade -- where to get in, where to take profits, and where to cut losses. We get paid for exiting trades not for entering them.

Yes, its good to elect out of IRC 988 at the start of your trading year; Jan 1 if you start then, or later in the year if you start later.

Yes, a simple internal election statement is all that is required. One idea is to send yourself an email as that is timestamped.

It would certainly be more helpful if the IRS would clarify the election wording a little.

Thanks.

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