Suppose one decides to report forex gains/losses on 1040 as ordinary income/loss, you would report that as "other income" on line 21. Do you need to include anything with the tax return to support this? Should you use the "mark to market" procedure for any outstanding positions at the end of the calendar year or are they reported when you have closed the position (probably the following year)?

Yes, forex ordinary gain or loss per broker is reported in a summary fashion on line 21 of Form 1040. If you use the performance record formula for calculating the gain or loss, that includes mark-to-market accounting.

The law is unclear about whether to use MTM or cash on spot forex.

__________________
FXCM does not endorse and cannot vouch for any of the third-party content on this site

How would we handle the interest charged gained? The performance record excludes them in the net trading number, so do we exclude it in line 21?

Interest income is reported like other interest income on Schedule B, so be careful to separate it out from forex trading gain or loss reported on line 21 Form 1040, or Form 6781 if elected out of 988.

__________________
FXCM does not endorse and cannot vouch for any of the third-party content on this site

Thank you very much. So would I be correct in assuming that the interest charged would go in schedule A (line 13)? I see that one of the articles states that IRC 1256 losses can be carried back 3 years - would the same be true for ordinary losses? Thanks so much for your help!

Interest expense is investment interest reported on Schedule A if investor tax status, and alternatively business interest expense reported on Schedule C if you have trader tax status.

Forex ordinary losses are not part of a Net Operating Loss carryback or carryforward unless you have trader tax status, in which case it is - but you need to explain that in a footnote.

__________________
FXCM does not endorse and cannot vouch for any of the third-party content on this site

Thank you very much!

Your welcome.

__________________
FXCM does not endorse and cannot vouch for any of the third-party content on this site

If we don't receive a 1099 from our broker regarding interest, do we not have to report it because they didn't? Thanks!

1099s are a brokers responsibility with the IRS; it has nothing to do with a taxpayer.

Forex gains and losses are not supposed to be reported; same for forex interest income.

But taxpayers are supposed to report all their income, which includes forex trading gains and losses and forex account interest income.

So its no excuse to say you did not receive a 1099.

__________________
FXCM does not endorse and cannot vouch for any of the third-party content on this site

So you only need to fill this line out, not worry about entering all the individual transactions like you would in stock trading? I'm new to forex, and this is the first year that I deal with forex tax. Please be specific as much as you can.


Thanks

Correct, summary reporting is allowed for forex.

__________________
FXCM does not endorse and cannot vouch for any of the third-party content on this site

I think is right, I gree with you.

your welcome

__________________
FXCM does not endorse and cannot vouch for any of the third-party content on this site

Hi. This is my first post. I'm not even sure if I should be posting here because I am a forex investor, not a trader. I have given a kick-ass trader the POA to trade for me. And I have to admit I am really a dummy in this area.

Anyway, I have seen it stated many times on this forum by GreenTrader Tax that forex income/loss is reported on line 21 (other income) of the 1040.

However, I found the following text here:http://www.forexforays.com/labels/Taxes.html

"....I got to the IRS employee with all the investment answers. I described my forex trading activity and the 1099-B form I'd received, and his answer was unambiguous: report the gains on Schedule D. Report them as short-term gains. Pay taxes at the short-term gain rate. Describe them as gains from currency investments. End of story."

I have also read in other places that you should report the income on line 21, form 1040, *and* in yet other places, you should do the Schedule D thing.

So does anyone know what is really the correct thing to do? It sounds like you could get away with doing it either way. I just want to pay as little tax as is humanly possible.

Thanks for any help you can give.

PS...If you report on the Schedule D, what are you supposed to put in columns b, c, d, and e?