Which financial products you trade and where you trade them can make a huge difference in tax savings. In this section, we list the various instruments and delve into how they are treated at tax time.
Tax treatment affects investors, retail business traders, proprietary traders and hedge funds. But sadly, many tax preparers overlook important differences in tax treatment for these groups, resulting in overpayments. Education is key — this section contains valuable information about how the various instruments are treated come tax time. Read on and don’t miss out on all the tax savings you’re entitled to!
Capital gains vs. ordinary income?
Most financial instruments — including securities, Section 1256 contracts, options, ETFs, indices, and bitcoin held as a capital asset — are subject to capital gains treatment. By default, forex contracts, swap contracts and Nadex binary options are subject to ordinary gain or loss treatment. The distinction between ordinary and capital gains treatment makes a big difference. The capital-loss limitation is a problem for traders and investors who may have trouble using up large capital-loss carryovers in subsequent tax years. Traders with trader tax status and a Section 475 MTM election have business ordinary-loss treatment, which is more likely to generate tax savings or refunds faster.
In this section, learn what’s included in each category, including:
For more in-depth information on tax treatment, read Green’s Trader Tax Guide.