Hi, I get a W2 from my job and i also trade forex spot. I wanted to know what is the maximum loss you can offset against your W2 earnings

Thanks in advance for the help
regards
Vgpal

If you did not elect out of IRC 988, you have ordinary loss treatment by default, and there is no limitation on ordinary losses. Forex ordinary loss goes on line 21 of Form 1040. It can offset your W-2 and any other income.

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I have a forex loss of around 20K and I have been reading up in this forum and else where that I can report this on line 21 of 1040, however my CPA who is doing my taxes (he has no idea of forex) insists line 21 can only take loss of 3000 and have to forward the remaining losses to next year.
Is this true? I checked form 1040 and it seems he is right, the line clearly states it should be the lesser of line 16 or $3000 (treat both numbers as positive even if loss), so in my case he put $3000 in line 21.

If I can report the entire amount as a loss for year 2006 then I can get some money back from my taxes to offset my huge loss.

Please help me, any assitance is appreciated.

Thanks,

- Philips.

Line 21 of Form 1040 has no loss limitations on ordinary losses.

Schedule D capital gains and losses has a loss limitation of $3,000 per year for individuals.

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I was reading IRS Pub 550 and IRS Pub 334 seeking info about taxes on spot forex. I wonder if I lose over $50,000 in a tax year and had not opted out 988, do I need to file Form 8886 for Loss Transactions and fill out Line 21 of Form 1040 as ordinary loss? Also, if I lost let's say -$75,000 but also made +$100,000 during same tax year which results end-of-year net p/l of +$25,000, do I not need to file Form 8886 based on net p/l or I must file 8886 based on loss of -$75,000? (See Pub below)

This poster is correct. We have the below statement on the Forex Tax page of our Web site.

Important Note: You need to file a Form 8886 (Reportable Transaction Disclosure Statement) if you have "transactions that result in losses of at least $2 million in any single tax year ($50,000 if from certain foreign currency transactions) or $4 million in any combination of tax years..." Other transactions mentioned on Form 8886 mostly relate to tax shelter transactions. These rules are found in IRS Reg. § 1.6011-4(b)(5)(iii)(B) and IRS publication 550 and 334.

If you have not filed a Form 8886, you should before the IRS contacts you; to avoid penalties. It's a very simple form to fill out and we can help.

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For profitable forex traders, using the 1256 capital gains treatment is best right? Thanks for your help. Regards, Russell.

To whom it may concerns:

I am a US citizen and want to start trading. I am sure if I will trade actively. Basically trading will not replace my main job. Does it make any different do it as individual or a legal entity. Really appreciate your advice.

If you want trader tax status and have another job, then a separate entity tax return is best. Read our Web site articles on entities.

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What if you don't have a separate job and trading is the only thing you do in terms of making a living, should you set up an LLC for the tax purpose?


Thanks

Part time traders use entities to deflect IRS scrutiny on trader tax status.

Full time traders use entities for AGI deductions; retirement plans and health insurance deductions.

Learn more about entities here http://www.greencompany.com/Traders/...Entities.shtml

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