General Topics
Markets
Technical Topics
Brokerage Firms
Community Lounge
Site Support

# US Capital gains tax

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?

2. ### JackR

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

3. ### hitnrun

to correct you. It is a 60/40 Tax Rule

Not 40/60

So quickly in my head on 500k in gains the taxes would be roughly \$135,000

6. ### oldtime

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.

7. ### JackR

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

ET IS FREE BECAUSE OF THE FINANCIAL SUPPORT FROM THESE COMPANIES: