The forex market is all about numbers; right from the inception of a trade to the end of it, traders carry out various activities around different numbers. However, there is one number that stands out above the rest to a forex trader – forex earnings.
Forex earnings are the proceeds one make from the forex market after a transaction. It is always a good thing to have some profits from the forex market as that is the aim of the whole venture in the first place. With earnings in the forex market comes some civic responsibilities that a lot of traders do not know about nor consider before going into the forex market. In most cases, traders that know about the need to pay tax from their forex earnings do not really want to pay them. They can go as far as trying to beat the system in order to take everything without fulfilling their civic responsibility of paying taxes. This is wrong and can catch up with the trader eventually.
TAX TREATMENT FOR OPTIONS AND FUTURES INVESTORS
Traders in this form of forex trading are grouped under the IRC 1256 contracts. This grouping means that traders get a lower tax consideration of 60/40 – 60% for capital gains and losses (capital gains and losses refer to increase or decrease in the value of a capital asset like investments, real estate, etc) while the remaining 40% is for short term (the concept of short term refers to holding an asset for a short period of time, a year or less to be precised).
BENEFITS OF PAYING TASK AS AN OPTIONS/FUTURES INVESTOR
Be it as it may, there are some benefits that a trader stand to gain from paying tax as an options and futures investor. The two main benefits in this case have to do with time and tax rate.
Of all the trade that futures and options traders make in a day, up to 60% of them can be counted as long term capital gain or losses. That is how time works in favor f such traders.
35% short term rate is charged on traders’ forex earnings when trading stocks held for less than one year. If it is futures or options, investors are taxed at 23% rate of their forex earnings.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.