| Forex
Tax & Regulatory Treatment
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Forex refers to trading foreign currency contracts in the Interbank foreign-exchange
market. Most of our clients have retail off-exchange forex brokerage accounts.
You can also trade currency futures on futures exchanges and that tax
and regulatory treatment is significantly different from forex. Currency
futures are Section 1256 contracts (regulated futures contracts). Be careful,
many professionals and IRS agents are not familiar with the forex tax-treatment
rules.
Trader Tax Center: Forex
tax treatment (start here).
Green’s
2013 Trader Tax Guide: Chapter 3 Tax Treatment.
- Forex accounting and tax reporting: Summary reporting is
used for forex traders and most brokers offer good online tax reports.
Spot forex brokers are not supposed to issue Form 1099s at tax time,
only forwards are covered instruments on Form 1099s. There are several
nuances and complexities in forex accounting that you should know about.
For example, forex brokers handle rollover trades differently. (We cover
forex accounting issues in Green’s 2013 Trader Tax Guide,
Chapter 4 Accounting Gains and Losses.)
Webinars: Watch our latest in-depth Webinars, Forex
Tax Treatment and CFTC Forex Trading Rules for Americans dated Feb.
27, 2013 and Feb. 23, 2012.
Click here for more Webinars related to forex.
Website section: Forex
Tax & Regulatory Treatment
Blog articles: Forex
Tax & Regulatory Treatment
Forex Tax:
Aug 16
12 - Why do forex forward dealers issue 1099s, yet retail spot forex
brokers do not?
Sep 20
11 - Iraqi Dinar Investing Does Not Trigger IRS Personal-Use Rules
Jul 25
11 - Iraqi dinar revaluation: Real consequences or just rumors?
Jul 12
11 - Are lower 60/40 tax rates on futures in jeopardy?
Jun 02
11 - Foreign Bank Account Report (FBAR) problems
Jan 29
11 - Spot forex update
Nov 11
10 - Forex tax update
Forex Regulation:
Oct 30
10 - Is U.S. forex trading safe?
Oct 01
10 - U.S. forex traders have 270 extra days to trade with foreign
banks
Sep 23
10 - Offshore retail forex trading accounts are being forced back
to the U.S.
Sep 01
10 - Can American off-exchange retail forex traders evade strict new
CFTC rules by trading on offshore platforms?
Aug 31
10 - New CFTC forex trading rules call for 50:1 leverage
Aug 10
10 - U.S. forex traders may not be able to skirt rules by moving accounts
offshore
Aug 07
10 - Dodd-Frank bill seeks to crack down on forex arena
What’s next?
There are many nuances and uncertainties when it comes to forex. For many
forex traders, there are considerable tax dollars at stake, whether it’s
deducting a huge ordinary tax loss without a capital loss limitation,
or taking advantage of the lower 60/40 futures tax rates under certain
limited conditions. Many forex traders want to be sure they are using
complicated forex tax laws correctly, and to their maximum advantage,
so they chose to consult with us about it.
We recommend a 30-minute phone consultation
with Robert A. Green, CPA, or our tax attorney Mark Feldman JD. Mr. Feldman
can also provide a tax opinion. Read "Spot
forex update" and scroll down to “Will a substantial authority
opinion letter help?”
Business treatment: Many forex traders qualify for trader
tax status, so they can also benefit from business treatment, entities
and our other tax strategies. As pointed out in Green’s 2013
Trader Tax Guide (Chapter 1), many forex traders’ account sizes
are too small in the eyes of the IRS – mini retail forex accounts
– and they will have a hard time qualifying. Many forex traders
also have full-time jobs, and it’s hard for the IRS to believe their
nighttime trading hours. If you do qualify for trader tax status, consider
an entity.
Income
tax preparation: Forex traders with significant trading gains
taxed with lower 60/40 tax rates or large ordinary losses often prefer
to have our CPA firm prepare their annual income tax returns. If the ordinary
loss is over $50,000, you need to file a Form 8886, too. Local accountants
usually don’t know all the forex tax-treatment nuances and complexities,
and forex traders seek correct handling with peace of mind.
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