Taxation of Futures Contracts Denominated in Foreign Currencies

Discussion in 'Taxes and Accounting' started by thehixx, Aug 21, 2014.

  1. thehixx


    I am a client of Interactive Brokers and have been looking at trading equity index futures that trade in countries outside of the United States and are denominated in foreign currencies such as Euro. However, I cannot find any information on how much of a headache such trades will become at tax time. For my futures contracts that are traded in USD, tax time is very simple. IB provides me with my mark-to-market gain/loss for the year and I enter that one number in Turbotax.

    However, with foreign currency denominated contracts, I will be accruing profit/loss in multiple currencies.... Euro, Yen, etc. Can anyone tell me how tax time works when one has accrued profits or losses in multiple currencies? Also, and very important, is a taxable transaction created when I convert my Euro / Yen profits back to dollars? If so, how can I possibly compute it, as a little profit or loss is coming in in the foreign currency every day and exchange rates change daily.

    Hopefully, there is an article or site somewhere that explains all of this!
    Last edited: Aug 21, 2014
  2. loyek590


    not too many replies
    I'm also a client of ib
    I'll give it a shot, just to add my 2 cents
    futures should be just the same, you figure your profit or loss at year end and type it in to turbo tax

    irs has not come up with any ruling on currency trading
    as it stands now, currency conversions, which is what you are legally going to have are tax free and don't need to be reported.

    you will also have an added 1099 called "brokers interest" which you will need to report
  3. sprstpd


    Not many replies because currencies and taxes is a complicated topic. I believe currencies are treated as property, and whenever you convert another currency into your base currency, it becomes a taxable event. So suppose CAD and USD are at parity, and you buy 1,000 CAD with 1,000 USD. Then later you convert the CAD back to USD when the exchange rate is 0.8 CAD = 1 USD. Then you'd get 1,250 USD. Your basis is 1,000 USD. You have to report 250 USD as an ordinary gain on your tax return. It becomes more complicated when you start buying stocks on foreign exchanges using foreign currencies.
  4. loyek590


    I've been doing this for 5 years, and they have never nailed me. They did go back 1 year and get me for not reporting the 1099, fair enough, just an over site on my part.

    I would advise you to do some more research. So far, no tax on currency conversions. ib does not report profit or loss marked to market on forex. The irs has not ruled on it. "You have to report" is an inaccurate statement. You talk like the irs is rational.
  5. sprstpd


    I don't think the fact that they haven't questioned you on your taxes is a reason to think you are correct. All I know is that everytime you convert from a foreign currency back to your own currency, it is a taxable transaction. I have reported previous transactions on Form 1040, Line 21, as Other Income.
  6. loyek590


    check with the IRS, ask them if it is a taxable event. There is no ruling as of yet. Mr. Green who has been in this business longer than I have thinks it may be. But then again, as much as I respect him, he needs to talk his own book.

    I have talked to ib. They will not make a distinction between a trade and a currency conversion. As the nice young lady I talked to said, "I don't think you would want us to do that."
  7. sprstpd


    Maybe it is different with currency futures, but what I am talking about is buying foreign stocks with foreign currencies. Foreign currencies are considered to be property and when you convert them back to your base currency, it is a taxable event.
  8. loyek590


    no, I don't trade currency futures. That would be a very simple deal, taxwise.

    I'm talking spot forex and spot currency conversions.
    no, I don't trade currency futures. That would be a very simple deal taxwise.

    I don't want to get into it with you man. All I'm saying is a currency conversion is not a taxable event and does not need to be reported.

    If you are Pimco and you sell bonds and buy Swiss Francs it probably gets reported by your accountant for your firm. But if you are a Podunk independent trader the IRS has better things to do than try to nail you on a ruling that isn't even in existence.
  9. sprstpd


  10. loyek590


    whatever, It's kind of comical to think of some low level IRS employee going through every trade trying to figure out if you made a profit or not. It's not reported on any form by the broker. So, if you want to be a good Boy Scout and report it on 1040 line 21 so you can sleep at night, go ahead.
    #10     Aug 22, 2014