Hi guys, I’m just starting to get into this whole thing. So far just reading and researching and playing with a demo account.
However, one thing is bothering me and I don’t seem to be able to find the definitive guide, US TAX? How does it work? If I started trading with a live account right now, do I have to document every single thing I do, write down every gain, and then file income tax quarterly? What if I make a certain amount of money, and then lose it, I still have to pay tax on my gains? Can someone direct me to a guide of some sort on that matter?
[B]
Regarding documentation. [/B] Your broker fully documents every detail of every trade you make. You don’t have to duplicate that chore. If you aren’t yet familiar with Statements from your broker, use your trading platform to pull up a Statement to Date of your demo trading activity. It should follow exactly the format used in your broker’s live accounts, and it will acquaint you with the detail that the broker records.
[B]Regarding taxes.[/B] Yes, you have to pay tax on your gains in the U.S. The only (legal) way I know to avoid tax on forex trading profits is to move to the U.K. and use spread-betting to trade the forex market.
[B]Regarding tax advice.[/B] I hope you can appreciate the fact that no responsible member of this forum will offer you tax advice — most certainly not on a public forum. For that, you need a tax professional. There are many who specialize in taxes for traders.
If you feel that you need to spend time studying taxes, before you even begin trading, then you might start your research here: forex traders tax accounting - Google Search
But, you’re worrying about a problem you don’t have yet. Trading is a business (or, at least, it damn well should be treated as a business!), and business profits are taxable. It’s kind of silly to say, “I’m worried about starting a business. What if I make money? What will I do about taxes?”
I would actually advise doing just that - duplicating. Part it is just a simple matter of using the trade info to for performance tracking purposes. A more critical reason to have your own record, though, is in case of broker error or other type of disagreement. There was the story not to long back of a guy who lost loads of money because his broker told him he was making money when he wasn’t. He would have known that had he been keeping track of things himself and not just relying on the broker statements.
