Question About Taxes

Beginner Questions
1

I am new to Forex and am a little confused about taxes for traders in the USA. I have been searching for an hour now and haven’t been able to get a clear answer. Forgive me for asking what I’m certain is a dumb question, but I would need to pay taxes only on net profits (as opposed to gross), right?

Let’s say I withdrew $5,000.00 of Forex trading profit one month. To be safe, I saved 35% ($1,750.00) of that profit for taxes at the end of the year. But then the next month, I lose $5,000.00 trading Forex. If I stopped trading Forex that day, would I still need to pay taxes since my net profit is now $0.00? Or would I still need to pay the $1,750.00 in taxes (which would mean I am taxed on gross profits)?

If only net profits are taxed, then I could theoretically use money saved for taxes to partially cover losses, right? So, to use the example above, let’s say in month 2 I only lost $4,000.00. That would make my net profit $1,000.00, which would be $350.00 in taxes. I would then have $1400.00 left over in savings since I would no longer need that for taxes.

2

Hey G, my strong recommendation, get an accountant. There are a lot of tax outfits that can help you with this. It’s not wise to seek tax help on an internet forum.

The Ever Wise VIPER

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3

You didn’t say where you’re located. I’m guessing the US, but chime in to confirm that. With taxes, I preface that your best bet is to work with a tax professional familiar with tracking investments and forex trading specifically. It’s very confusing.

Do some research on the Internal Revenue Code (IRC) for “Section 988” and “1256 contracts.” I believe spot forex gets the Section 988 distinction, but I believe that also depends on how long you hold open positions and whether you’ve declared one or the other directly with the IRS during the year.

Greentradertax has been around for a long time and Robert Green has some experience in the matter. Here’s a blog post from their Tax Center on Forex taxation:

https://greentradertax.com/trader-tax-center/tax-treatment/forex/

That should get you started. But again, chat with a tax professional.

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Have we met???

The Ever Wondering VIPER