Welcome to the GreenTrader Tax thread, hosted by Robert A. Green, CPA, CEO and founder of Green & Company CPAs, LLC. GreenTrader Tax will post some basic tax information, briefly answer some of your questions and also refer you to more detailed information at www.greentradertax.com.

Tax season is looming, and we bet you are looking for some useful information on how to declare your trading profits/losses. So to kick-off this forum, here is a link to some information about Currency & Forex taxation:
http://www.greencompany.com/Educatio...Currency.shtml.

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Hi there! I guess I have a basic question/issue. I have been informed that it is clear that the 1256 opt out does not apply to spot currency transactions and that any income derived through a platform such as FXCM (using interbank spot transactions in currencies) must be declared as ordinary income. So is it true that while the policy behind this might be nutty, and that it might be revised in the future, that for right now traders, even those of us that do it for a living, have no choice but declare all net gains as ordinary income?

I am not asking for tax advice related to anything particular to my returns, but just in general what that rule is.

Cheers,
Mark

Excerpt from http://www.greencompany.com/Educatio...Currency.shtml

"Thankfully, there is an exception in IRC 988 for traders who trade in forex forward contracts as a capital asset. Traders may elect out of IRC 988 for the more tax-beneficial IRC 1256 60/40 treatment. Rather than pay taxes on forex gains at higher ordinary tax rates (up to 35 percent), they are able to pay taxes at the lower 60/40 rates (up to 23 percent).

Notice the rule says forward contracts and it does not mention spot forex, which the majority of traders trade. An argument can be made for applying these same rules to spot forex, too. GreenTrader is working with the IRS national office to clarify these rules so there is no further uncertainty.

Robert A. Green, CPA & CEO
GreenTraderTax & GreenTraderLaw

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Thanks for the info. But until this issue is clarified by the IRS, my understanding is that one cannot simply cannot claim the 1256 exemption for spot currency contracts, and that it is all ordinary income. Is that an incorrect understanding?

Thanks!
Mark

Dear Mark:

We have more detailed (internal-only) tax research on the spot forex taxation matter and we address this important issue in consultations with clients and during tax preparation. We hope to publish some of this additional info on our currency Web page soon.

What cite or authority have you heard for the position you are taking?

Please also call our customer service line 877-662-2014 (toll-free), or 646-216-8061 to arrange a phone call with me to discuss this issue.

Thanks.
Robert Green, CPA

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Click the next link to read one of our company's internal research memos on the spot forex taxation issue.
http://www.greencompany.com/Educatio...o20050821_.pdf

The GreenTraderTax Alliance for Traders http://www.greencompany.com/Traders/Advocacy.shtml would like to pursue this spot forex taxation issue with the IRS national office, who indicated they would work with us on it. We need corporate sponsors and members to finance the efforts of some leading tax attorneys.

Let's all work together to get to the bottom of this important tax issue and to follow up on it with the IRS. The futures industry lobbies hard to retain more-beneficial 60/40 tax treatment and the forex industry needs a tax-lobbying effort too.

Thanks, Robert A. Green, CPA & CEO

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Hi, can you describe how ForEx is taxed in the UK?

Thanks.

sorry, can't comment on UK taxation.

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We just significantly updated our Forex taxation page at http://www.greencompany.com/Educatio...Currency.shtml

Robert A. Green, CPA & CEO of GreenTraderTax wrote a new summary article on top of the page.

Roger Lorence JD LLM of GreenTraderLaw PLLC has an in-depth article on spot forex taxation.

Another GreenTraderLaw attorney wrote an internal memorandum.

This is cutting edge work and it's very good news for forex traders. Don't get the wrong answers and sell yourself short tax-wise, consider this new body of work for better tax results.

Post your questions on this forum and/or consider a consultation with GreenTraderTax. Thanks.

Robert A. Green, CPA & CEO
GreenTrader companies

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Dear Sir/Madam,

The ACM (Advanced Currency Markets) in Swiss said that one of Advantages of trading with ACM is:
"Swiss based therefore no capital gains tax on foreign exchange profits."

If I open an account with ACM, I will not pay capital gains tax on foreign exchange profits in US. Is it true?

Thank you very much!

Not true.

US residents and/or citizens are taxed on worldwide income, no matter what the character (capital gains or ordinary). Plus you have to report foreign bank accounts or risk very high penalties.

Learn about global tax issues in my February article for SFO magazine. Go to http://www.greencompany.com/Educatio...MediaSFO.shtml.

Trading Across Borders: The Tax Issues by Robert A. Green, CPA
Don’t leave home without them. Click here http://www.greencompany.com/Educatio...lTraderTax.pdf for Green's original submission. The final SFO article is available on the SFO site for purchase, or pick up the print magaine.

When it comes to forex, always report your income, even though your broker may not report it to the IRS or if you have a foreign account. It is meaningless when you take money out of the account, you are taxed on the income as you make it each tax year.

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Hi,

I' have a wierd situation with regarding this trader staus and would appreciate any help.

I have been actively trading since a couple of years ago. Last year, I traded for about 130 times and the total sell proceeds was over $1,000,000. I have a full time job but my wife stays at home and do the trading for me. However, my brokerage account has only my name and SSN. I'd like to file jointly with my wife been trader. Woud this be a problem in IRS's eyes? If I cannot file with my wife been the trader, would it be ok if I try it with myself been a trader?

Thanks in advance for your help!

If you have trader tax status - business treatment - and you are partners with your wife in the trading business, you must file a partnership tax return.

This can be a good thing and it helps out tax-wise in a number of ways. Learn more here http://www.greencompany.com/Traders/...husbandandwife.

130 round trip trades is extremely low and you probably don't qualify as a part-time trader. Filing a separate partnership tax return Form 1065 from your individual tax return can deflect IRS scrutiny and that's why partnership returns are good for part-time traders.

You may have the defacto factors needed to do this fix for 2005. We can still help you.

I suggest a 30 minute consultation with me to review it all. http://www.greencompany.com/Traders/...nsulting.shtml

But again, my first thought is you may not qualify.

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We are offering free Webinars co-hosted by GreenTrader and FXCM.

GreenTrader CPAs will discuss forex taxation and trader tax status.

FXCM will give a brief introduction to the Forex market, and then dive into how the FX market might help you reach your financial goals. Of course FXCM will be available to answer any questions as well.

Next GreenTrader / FXCM Webinar is April 5, 2006, 4:15 to 5:45 pm ET.

You may sign up for the webinar under the following link:
http://liveseminar.fxcm.com/signup.php

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Dear Sir/Madam,

I have a full-time job. I did part-time forex trading. I traded more than 3,650contracts and had a gain more than $50,000 in 2005. Could I qualify for trader tax status?

Thank you very much!