Forex Trading Taxes

Forex Trading Taxes

Beginner Forex traders often do not think about filling taxes for profits because they are too obsessed with a goal to make a successful deal. Here is what you should know before making your very first trade from a real Forex account.

Do You Really Need To Pay Taxes From Forex Earnings?

Taxing is the most confusing aspect about Forex trading business because it is a global market, and there are no universal rules how to stay tax-compliant in every particular state, especially given the fact that the tax legislation is ever-evolving. If you live in Indonesia and use Capital Markets as a Forex broker, which is registered in New York, then you should consult a tax professional from your country to explain you all nuances concerning Forex incomes taxation. But if you are a U.S. citizen and trade with Capital Markets, the next information may be useful for you.

  • Gains from Forex trading are taxable in the USA;
  • Capital Markets, as well as the majority of the US brokerage firms, do not handle their clients’ taxes;
  • Forex options, futures, and spot traders must submit their capital earnings under Section 988 or Section 1256 by choice;
  • Section 988 is more suitable for the net capital losses because they can be used to reduce taxes from your other income streams;
  • Section 1256 is more favorable for capital earnings thanks to the 60-40 tax treatment, according to which, 60% of your total capital gains are taxed at a rate of 15%, while the rest 40% of your capital gains are taxed at a rate of 35%;
  • You need to elect your Section before engaging in the first real account trade and prior January 1 of the trading year. However, you have a right to change your Section is IRS (Internal Revenue Service) approves that;
  • You need to file a report about your Forex incomes to IRS after gathering your Forex broker statements and putting them in calendar month order;
  • If you have the slightest doubt, make sure you confer with a tax specialist before starting Forex trading.

Who does not Pay Forex Trading Taxes?

You see, the USA is not very friendly towards Forex traders and charges them with quite a heavy profit tax. However, there are countries where Forex traders are not obliged to file Forex incomes such as:

  • Andorra;
  • Bermuda;
  • UAE;
  • The British Virgin Islands;
  • The Maldives;
  • The Cayman Islands.

The list is not complete; you should ask your tax consultant whether you must pay taxes on Forex trading in your very state. Add this website to your browser bookmarks to stay abreast of all changes occurring in the Forex market including alterations in the Forex trading taxation in different parts of the world.