Say last year in 2004 I lose $7k trading futures. Then in 2005 I made $10k trading futures. How much taxes do i have to pay for the year? How does it work?
let go step by step, first what will be your tax status, investor, single, double, MTM, S corp, LLC ..etc..
since you have a job, 'normally' you classify yourself as regular plain investor, that means you got a maximum of $3,000 in losses to offset your income. If you has gain in future then there is problem of computing 60% and 40% of the gain with diff tax rate. fortunately you had losses only, check out this article look under head line Long-Term Loss With Short-Term Loss, the bottom line in this scenario, you take $3000 losses against your income, you carry the $4000 losses until the next year and use it to offset your future gain. Long-Term Loss With Short-Term Loss disclaimer: I am not a tax advisor and this is not a tax advising.
For your losses in 2004, did you take a 3000 deduction? If so, then you would have then carried over 4k of capital losses into 2005. Your 10k gain would net against the 4k, and you would have 6k of gains. 60% of which is taxed at long term capital gain, the other 40% at short term. Hope that helps.