My wife is at a company that has a 401k plan. We fully funded our IRA's last year and plan to again this year, so we'll have $10k socked away by year's end. Here's the plan for 2011: I'm going to open a forex account funded with the $10k and another forex account with $10k of my IRA. On Jan 2, I'm going to make equal and opposite bets with the full amount in both accounts and hold until one busts and the other doubles. Either the IRA goes to $20k and my street account goes to $0, or the IRA goes to $0 and my street account goes to $20k. If the IRA doubles, then I realize that gain tax free and I can write off the $10k loss in my street account against 2011 earnings. If the street account doubles, then we up the amount my wife is contributing to her 401k by $10k, and make up for the loss of take home pay with the extra $10k in the street account. The $10k trading gain is taxed at a lower cap gains. How will this blow up and land me in Club Fed?
When trading forex do not forget about positive and negative interest rate rolls. What currency pairs are you planing to use for this endevor? Akuma
Maybe it was the nightmares I had last night! But, how is this doing anything for you? On one hand, you have a tax deferred gain, which BTW, when you take it out may have a lot higher tax rate than the one you are in now. (thx to obama and the socialists in power). The other, you have a 10k loss of which you can write off 3k a year. (unless obama elimantes this) So, I am interested please, please tell me how you are better off doing this with some specifics.
You can only write off $3k per year if you are filing jointly. If you have other gains > $7k, then you can write off the whole $10k. No idea about the legality of this. I don't see anything wrong, but then I don't know much about these things
I don't want to get into a tax argument but I believe the OP is talking about writing off the FOREX loss on Line 21 of the 1040 (other income), not as a capital loss ($3k limitation per year) A quick search on google for Forex and Line 21 returned this thread, you may find it interesting (or not): http://forexforums.dailyfx.com/forex-tax/13694-forex-loss-line-21-1040-a.html Quote from GreenTrader Tax GreenTrader Tax: line 21 versus Sch D
@GTS, Thanks for the links. I had no idea (will read the articles in detail later). I have never traded spot forex, but trade forex futures in GLOBEX extensively. I just do 60/40 LT/ST like all other futures.