I was trying to figure out ballpark capital gains taxes on futures and commodities trading in the USA. Wiki says 15% on positions held for 1 year? but what if all positions are closed by end of day. What would tax burden on 100k in profits be, Or 1 million in profits?
If you are trading futures then there is a 40/60 split. You pay regular income tax (depends on your bracket) on 40% of your profit and long-term capital gains (currently 15%) on the other 60%. Unless they change the law, the 15% capital gains rate will expire at the end of this tax year and revert to 20%. The ordinary income rates will also change but, at this time, there is no plan to eliminate the 40/60 rule, although the subject has come up. If you are a trader, and have made an IRS election to use mark-to-market accounting, then all gains are taxed at the short term rate. Jack
that's the beauty of futures, otherwise called by the IRS 1256 contracts. Even if you only hold them one second you get the 60/40 split. google 1256 or there's a very good accountant named Green who sometimes posts here who specializes in trading taxes. He has a lot of good free info on his site.
Trading Time: Close. Applying the law at 40/60: $500,000 x .4 = $200,000 $500,000 x .6 = $300,000 Assuming 35% bracket for total income $200,000 x .35 = $70,000 $300,000 x .15 = $45,000 Total tax = $115,000 (Does not allow for any deductions, etc) The more you make the greater the benefit. If you only make $80K a year in total income, all from futures trading, then you are in a 25% bracket. Thus, the difference between the regular income (short-term) rate is less. 35%-15%= 20% versus 25%-15%=10%. Incidently, all futures positions are marked-to-market each day. That is one of the reasons for the 40/60. Money is essentially added or removed from your account each night. If you are not familiar with how futures are traded I'd do a bit of reading or you might be in for a big surprise. Jack