Tax Question ES/ Mark to Market Trader Election

Discussion in 'Index Futures' started by Dominic, Apr 5, 2009.

  1. Dominic

    Dominic

    Since 2000 I have been trading equities fulltime and elected the Mark to Market election back in 2001; have not beeen trading equities any longer since end of 2008; just started trading the ES fulltime this year and already know about 1256 contracts are considered mark to market, yet curious what are the benefits if I was to take the M2M election for futures also???

    So there is a 60/40 tax benefit if you trade futures, yet what would be the drawback if I elected the M2M election for the futres also?

    How would I figure out the numbers off of lets says $100K profit trading futures in both scenairos, one using the 60/40 rate and the other electing M2M??

    Any input or advice would be appreciated.

    Thanks

    Dominic
     
  2. bone

    bone ET Sponsor

    Don't do marked-to-market unless you have an open position that went from 2008 to 2009. Choose the cash accounting method. And then claim blended capital gains.
     
  3. Dominic

    Dominic

    I believe most futures contracts are already considered Marked to Market; I didnt hold any future positions over from 2008 into 2009.

    What I'm trying to guage is what the tax would be off of $100K profit in two different situations; one, if someone had elected for the mark to market Trader election and two, if they did not and just keep the typical 60/40 rate.
     
  4. Here is a link to Capital Gains Tax Rates:
    Paying Taxes on Futurs

    Here is an example of how it works:

    Lets assume that Bob made $10,000 in 2008 from trading futures.

    1. $6,000 would be taxed at the Long-term Capital Gains Tax Rate, and
    2. $4,000 would be taxed at the Short-term Capital Gains Tax Rate.

    So Bob would pay:
    a. $900 on the first level (LTCGT @ 15%) and
    b. $1,400 on the second level (STCGT @ 35%) for a total of
    c. $2,300 in total taxes on $10,000 of income.

    Hope that helps.
     
  5. Surdo

    Surdo

    Your tax liability with no fancy itemized deductions is $19,472 on 100K ordinary income, ($5450 standard ded., $3500 single exemption) http://www.moneychimp.com/features/tax_calculator.htm

    Your tax liability on 100k capital gains on section 1256 contracts is $23,000.
    60K taxed at 15% LT CG
    40K taxed at 35% ST CG
     
  6. I have no personal gain in this. However, I recommend buying the book “Capital Gains” at http://www.fairmark.com/books/cgmt.htm. The author is a Harvard trained tax lawyer. Part V: Taxation of Traders should answer your questions.