Futures profits get 60/40 tax treatment? Not so fast

Discussion in 'Taxes and Accounting' started by J.P., Mar 11, 2017.

  1. J.P.

    J.P.

    Futures profits get 60/40 tax treatment? Not so fast.

    For years I've been trading futures and using TurboTax without paying the detailed attention to taxation that I should have been paying.

    Until this year.

    Something in the back of my mind told me that the amount of taxes on futures that I was paying was too high. So I conducted a simple what-if scenario. To test using TurboTax, I simply increased my futures trading gains, Form 6781, Line 1, by an additional $100k. (I declare neither an entity nor trader tax status; this is a straightforward personal income tax return.) My understanding was that this should have increased my tax by $23k (40% at the 35% short-term rate and 60% at the 15% long-term rate, yielding an effective rate of 23%). However, my taxes shot up much more than that.

    In studying the details I found that some of the tax increase was in the further disallowance of expenses as evidenced by that god-forsaken Alternative Minimum Tax, Form 6251.

    Fine.

    But then there's also this Form 8960, Net Investment Income Tax, Line 17, which seems to straightforwardly increase your entire tax bill by yet another 3.8% of all income, without reason, and with no regard for the futures' 60/40 tax treatment!

    I don't know; maybe I'm not doing my taxes correctly. Is all this correct? I'm hoping that someone with consistent significant futures gains, who has been doing their own taxes, will let me know if I have been completing these tax forms properly all these years as I am paying more than 23% on my futures gains. This just doesn't seem right.
     
  2. Overnight

    Overnight

    Seems straight-forward based on the form, assuming you are trading futures AND NOTHING ELSE. If you are involved with straddles, you may have other concerns. In any case, speak with an experienced accountant and have them do your taxes if you have a concern. Not here. :)


    "If your section 1256 contracts produce capital gain or loss, gains or losses on section 1256 contracts open at the end of the year, or terminated during the year, are treated as 60% long term and 40% short term, regardless of how long the contracts were held. "
     
  3. 8960 is the Obamacare capital gains tax which kicks in over $200k AGI

    It has nothing to do with 60/40 or AMT
     
  4. J.P.

    J.P.

    Thanks, Overnight, I know this. The point of this post is that I'm not getting the 60/40. (Or I'm not doing my taxes correctly.)
     
  5. J.P.

    J.P.

    @atrocious, thank you very much. That definitely helps my understanding of all this.

    Best,
    JP
     
  6. algofy

    algofy

    Have a qualified pro do your taxes.