Capital gains tax rate; equities vs futures

Discussion in 'Taxes and Accounting' started by Dominic, Dec 3, 2008.

  1. Dominic


    Whats the effective short term tax rate on equites vs futures? I believe that futures have a much lower short term rate??

  2. Futures have a 60/40 split.

    60% short term and 40% long term capital gains.

    Equties are 100% short term
  3. Dominic


    So if someone was to make $1K profit on short term trading via equities, what is the approx amount that they would have to pay in capital gains tax? Is it around 28% and 15% for long term rate?

  4. Biog


    You have it flipped backwards:

    1. The split: Instead of having all of your trading gains subject to the short-term capital gains tax rate of up to 35%, Section 1256 contracts allow 60% of your gain to be taxed at the lower long-term rate of 15%. This results in a combined tax rate of 23%, a 12% savings over the short-term capital gains rate.
  5. Something to keep in mind is the fact that Obama wants to raise the long term capital gains tax rate (Don’t get me started about that). Exactly what it is raised to has never been concretely stated but he wants to do it. Given the current economic climate, he may hold off on it at least temporarily, time will tell.

    My point being that the advantageous tax treatment of trading futures will probably decline somewhat in the future and become closer to the tax rates of trading equities. Unless of course they rewrite Section 1256 taking into account the new tax laws. I wouldn’t hold my breath on that happening any time soon.

    Just something to consider. Good trading.