If one has short-term equity losses in previous years that can be carried foward to cancel out emini profits, would it be smart to just use the 40% of futures gains taxed short-term to cancel out losses, and pay the taxes on the 60% at the lower rate, while saving the rest of the losses for cancelling out the 40% short-term profits (hopefully) for the following year? For example, say one had $100,000 in short-term equity trading losses over the last 2 years, and this year one makes 50k in emini profits. Would you use 50k of losses to make all your present gains tax-free, or are you better off in the long run to just claim 40% of 50k (20k) as carry-foward, pay the lower rate tax on 60% of 50k, and save the 70K in previous losses for subsequent futures gains down the road? In other words, keep the 60% long-term gains completely separate and just using the 40% short-term to cancel out from one's previous short-term losses? If one had 100k in short-term losses, you could use this to cancel out the short-term taxes of up to 250K in futures profits, leaving you to pay the long-term rate on the remaining 150k. Otherwise, if you used the entire 100k carryfoward up front, you would have to then pay 60/40 on 150k, which would seem to be a far bigger tax bill. Or is this even legal?

There is a limit on the amount of loss'es you can carryforward from previous years to offset current year income . $3000.00/year.

First off, this is an individual tax question and it depends on your personal financial situation and comfort level. But I believe this needs clarifying and maybe correcting. I'll explain what I'm familiar with. I'm not a tax professional, but have been familiar with my own trader taxes for the past several years, so you may want to consult a tax professional for the last word. After tallying up your short term & long term gains/losses on your tax form, I believe these are ALL netted together to determine what situation you are in, and from there deal with each situation: long-term gain with short-term gain long-term loss with short-term gain long-term gain with short-term loss long-term loss with short-term loss. Short term loss carryover = 100k Short term gain (40%) from 50k futures = 20k ---------------------------------------------------------- Short term loss = 80k (not 70k as you stated) Long term gain (60%) from 50k futures = 30k ---------------------------------------------------------- Total loss = 50k in short term capital losses Again, it seems the confusion here is that you are separating short/term long term gains/losses. You have to net them together to determine if they cancel each other out, then if not, deal with them separately if necessary. In your case, as I tried to tally above, your long term gain is still netted out and the result is you have a 50k short term capital loss. There is the issue of electing Mark-to-Market accouting for futures, but since you didn't bring it up, I'm assuming that it's not the issue here. I'd appreciate if a tax pro corrected me also. Hopefully, I'm not way off the ball here.

It seems like what you did was to just net out the entire 50k gain of this year with 50k of prior losses, leaving me with 50k of short-term losses to carry forward for next year. That would be one way to deal with it, and perhaps the best way if one decided to quit trading/investing (the losses by the way were from prior years, not the current one -- and thanks for clearing up my math snafu). The issue is one of separating long term gains and short term gains; one can use short-term losses to net out long-term gains if one desires (so I've been told by my accountant), yet since the long-term gains are only taxed at 15%, why waste prior short-term losses to net out these lower-taxed gains, and instead save them for netting out future short-term gains? In the situation above, its all moot if I happen to make 250k in futures gains, giving me 100k of short-term gains to completely net out the prior years' loss, and I would just have to pay 15% on the remaining 150k (hopefully this is the case?). What I am suggesting is if one were to only make 50k this year, he should actually pay the tax on the long-term portion, net out the 40% short-term gains with the prior losses, and save the remaining losses for the next year's portion of short-term gains. Now only if the above were legal? Hoping someone can clear this up.

http://taxguide.completetax.com/text/Q06_5900.asp i think you must offset long and short term losses against each separately until they are used up. then when short term are used up you can offset long term.

So yes, I have the choice to use my prior short-term losses to net out my long-term gains -- but do I have to? Because I think I would pay less tax overall if I paid the 15% now on the long-term gains, while reserving my short-term losses for future short-term gains.

dont think you can do it. i think you must offset long and short term losses against each separately until they are used up. then when short term are used up you can offset long term with short term.