I'm interested in starting to trade the eMini's & was wondering what kind of issues i should be aware of before next April when i'll need to file my tax return? Also is there any software available that will automatically calculate futures trades profit/losses for a tax return? TIA
Futures get tax at 60% long term capital gains and 40% regular income. I haven't used it but, Turbo Tax should work
Trading the eMinis has some fantastic tax benefits. The first benefit is that eMinis are classified as a IRC 1256 contact. As a 1256 contract the net capital gain or loss from your trading will be divided into 60% long-term and 40% short-term regardless of your actual holding period. Therefore, if you have a net gain from trading eMini's 60% of the gain will be treated as a long-term capital gain and will be taxed at a maximum 15% tax rate. Another tax benefit you receive from trading the eMinis is that you do not have to account for the wash sale rule. The wash sale rule basically states that if you sell a stock at a loss and buy replacement stock 30-days before, or 30- days after the sale of the same stock, you canât deduct the loss. This rule does not apply to gains but only to losses. Naturally, the IRS wants to tax all of your gains. Typically Traders have a much harder time keeping records relating to wash sales because they engage in so many transactions so having the ability to not worry about this is a great advantage. The next tax benefit of trading the eMinis is the ability to make an election to carryback a loss (up to 3 years) to a year that you had gains from trading the eMinis. When you carryback the loss you can amend the prior year tax return and apply for a refund. Any loss that you were not able to carryback and use in a prior tax year would be carried forward indefinitely until it is use up. The finally benefit of trading the eMinis is the fact that you do not need to provide the IRS a list of all of you trading activity at the end of the year. The net gain or loss from your trading would be reported on a Form 6781 without the corresponding detail.
It's about impossible to explain, the IRS does a horrible job in Pub 546, and the accountants make it worse by trying to explain it to you like you have nothing else to worry about except taxes. It's very simple. Just down load form 6781. And study it. That's where you put your profit or loss. Then look at Sched D. That's where you enter info from 6781. The good thing is, you're taxed at 60% long/40%short capital gains rate no matter how long you hold. Don't let anyone try to get you to list every trade. You don't need to. That is for stock traders. I guess the IRS figured if they made it too complicated, futures traders would just go to jail rather than try and figure it all out.
First, does all index futures trading fall under the IRC 1256 contracts rules? How about options on futures? Second: If trading is the sole (or nearly sole) income of a person, is it posible to make IRA contributions from the earnings? and can the income be counted toward social security income? Appreciate any help Regards, TryHarder
Index futures and options on futures should qualify as a 1256 contract. Secondly, all earnings you create from trading is not considered earned income and as such the income is not subject to Social Security and Medicare tax. In addition, because the income you generate is not considered earned income you cannot contributed to an IRA from the earnings. The good new from all of this is you do not have to pay 15.3% in self employment tax on your net earning from trading. The bad news is that you are not able to make a contribution to a tax deferred retirement account.