US Capital gains tax

Discussion in 'Trading' started by trading_time, Jun 2, 2012.

  1. 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.

  3. hitnrun


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

    Not 40/60
  4. So quickly in my head on 500k in gains the taxes would be roughly $135,000

  5. hitnrun


    get a good cpa & maxamize your deductions as a trader
  6. 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


    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.