I am a tax paying citizen in the United States. I have a Forex trading account with a broker in Monaco.
My account has $4500 in profit sitting in it. I plan to withdraw it next week by having the money transferred to my bank account here in the United States
I have not made any kind of declaration of for Section 988 and Section 1256.
What do I need to do to get this under control and taxing to avoid legal problems down the line?
Find a tax guy or gal, or some software always. That’s always the best advice.
But if you didn’t elect anything, for retail fx you’re section 988. You have to decide on 1256 before the trading YEAR starts.
So look up section 988 net gain/loss.
If you’re consistently making money trading retail fx, then look at electing 1256.
Forex futures and options are different. NFA.
I thought the deadline for selecting 1256 is before yoiur first trade, not the start of the year.
I read the requirement as being between you and the reflection in the mirror - internal record keeping. So you decide internally in your head or on a piece of paper with date or an email you send yourself. It’s supposed to be by Jan 1 of the trading year, or before the trading year actually starts.
Now I don’t know how the IRS would police that, because you don’t have to file anything with them about making the election (or opting out of 988).
Extra reading. Again, ask your CPA or tax guy.
At minimum, you’re filing 988, so the worst situation would tax your gains as ordinary income.