Bum... great ideas, it would work very well for bpj to accomplish what he wants as they correlate but would have no legal issues in my opinion. I no longer prepare taxes but used to be in the business. My CPA would give this a thumbs up. This really is a great topic for US taxes especially with AMT and having to adjust for year to year changes in hitting the higher rates. I can't speak to other countries tax policies but to be better able to control your capital gains each year is a good tool for your toolbag.
Great post. I am not sure about example 1 since both are tied to the same underlying, but example 2 should pass IRS examines since SPY and QQQ are not substantially the same asset.
Thank you all for suggestions. I looked at this form 550 but it really does not apply to me as a U.S. non-resident alien. To be honest, I really feel sorry for you, U.S. citizens, for having to deal with such a complicated tax system. It should be much simpler and the fact that you need to pay U.S. taxes on your non-U.S. income even if you do not live in the U.S. is a good reason to start a revolution - but that is politics... I agree that selling an asset for below its market value, especially to a connected party, would be tax evasion, even in my country. However, I have got something better: It came to my mind during sleep - use calendar spreads on CL futures! Go short Jan, long Feb. Wait for it to develop - let's say it is the long Feb leg that shows the desired level of loss. Close this leg and AT THE SAME TIME go long Mar to keep the net position (short Jan - long Mar) at no directional exposure. Then, in new tax year - close out both legs. It seems perfectly legal to me and no court, no tax official, no logically thinking person could question it. It is also not without risks and costs - the main being: cost of spread, imperfect execution, commissions, risk of spread going against you which will cause a "real" loss of cash. What do you think about this idea? What can go wrong with it? Does every FCM accept reduced margin on calendar spreads?
"I agree that selling an asset for below its market value, especially to a connected party, would be tax evasion, even in my country." Not just tax evasion. You would be violating best bid of a federally regulated product on a federally regulated exchange. That in itself would be a felony. My first week as a trader I watched 5 guys get frog-marched out of the pit for doing exactly that. Your suggestion of futures is fine, nothing illegal there, although it wouldn't work for me as I had to account for gains whether realized or unrealized. Just understand that at 1:1, you would not be flat. Move Feb to March even less so. ...and although our laws may be onerous, this is why people like to incorporate and do business in the U.S., and why places without laws, such as Nigeria and Brazil are 3rd world shit-holes that no one can tolerate doing business with.
As Wheezooo said, futures in the U.S. are taxed based upon market value at the end of the year, regardless of when they are closed/opened. Not sure how it's done in your country. In the U.S., stocks are taxed when closed which is why I suggest them over futures.
Neither of Bum's strategies would fly in the US. In the first strategy, they are clearly offsetting positions under the straddle rules. The second strategy is more debatable, but at least in a portfolio margin account, the fifth test for presumed offsetting positions would apply for long SPY/short QQQ: "The aggregate margin requirement for the positions is lower than the sum of the margin requirements for each position if held separately."
Where I am you only pay tax on realized capital gain - even if a futures position is open, you are not liable for any tax until you close it. @Wheezooo What did you mean by "at 1:1 I would not be flat"? Does it refer to the IRS treatment of open futures positions?
You stated short Jan vs long Feb CL has no directional exposure. That is not true. You would be a bit short. Rolling that + Feb to +March would make you shorter.
Anything done with the same underlying would be a wash sale. In both cases, there would be overnight market risk from closing one leg in December and then the other in January. Hedging the January leg with another ETF when closing December might be appropriate (restore the pair).