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[forexplayer]

Hi,
Can anyone tell me where and how are Forex transactions supposed to be reported on a US Tax return. I undertand they cannot be put under Capital Gains/ Loss , so where do they have to be entered? I am using HRBlock's online Tax prep program to complete my return , but i was stumped about this question. Any of you experienced pros out here that have done it before , please help with guidance.

Thanks

[ajhardesty]

Maybe this will help:

http://www.forex-day-trading.com/forex-taxes.htm

[sfish]

The messages below are copied and pasted from another forum where I am the author / replyor. the lines across are there to seperate the different post.

Try the link to the forum below and www.irs.gov

My research is forex is treated as futures contract so the 1256 rule applies if you are filing as a individual use IRS form 6781. This does benefit you because of the 60/40 rule allowing 60% of your trades to be taxed as long term gains, at a lower rate. If you elect to file as "in the business" of trading then you need to read and maybe opt out of section 988 rule.


http://www.irs.gov/taxtopics/tc429.html ( READ THIS IRS topic 429 )

http://www.irs.gov/pub/irs-pdf/f6781.pdf

http://www.irs.gov/pub/irs-pdf/p550.pdffficeffice" />

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Don't you have to declare yourself "mark to market" before doing this? Or does MTM apply outside of that declaration under some conditions?

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I do not know but I read it as there is no choise all section 1256 contracts are MTM, and currency trading is a section 1256 contract. IRS Publication 550, Page 40.
From just the reading I have had time for using MTM would be in our favor and should be reviewed. Your gains are 60 -40 split for long term and short term gains regardless of the holding period. Losses can be carried back 3 years. If you have a MTM gain this year It will wash out in time.




Also, it is good to print this for your accoutant (mine did not know the first year):
www.forex-day-trading.com/forex-taxes.htm

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This link above states you can elect out of section 988. I think you would opt in but I would not know why you would with the 60/40 rule. You do not need to opt out IMO because it is a section 1256 contract. AS stated below.

4.37.1.5.9.4 (07-31-2002)
IRC section 988 Important Provisions
Two of the more important provisions of IRC section 988 and the related regulations are:

Foreign exchange gains and losses are generally ordinary;

The source of exchange gain or loss is generally determined by reference to the residence of the taxpayer or QBU of the taxpayer.


Other noteworthy provisions of IRC section 988 and the related regulations are:

A taxpayer may elect to treat exchange gain or loss attributable to a forward contract, futures contract or option as capital if the contract is a capital asset in the taxpayer's hands and is not part of a straddle;

IRC section 988 does not apply to futures and options contracts that are IRS section 1256 contracts but a taxpayer may elect to have IRS section 988 apply to those contracts;

The taxpayer must recognize a gain or loss if it makes or takes delivery on a futures contract, forward contract or option subject to the IRC section 988 nonfunctional currency rules.

Best regards,
Sfish

[sfish]

Forexplayer,

With HR block program I am not sure if form 6781 is available. It has been a while since I have sen this program. You may need to print the form from the link and fill it out by hand and enter the bottom line of Profit / loss into hr block program on a override the mail your form. Once agein I am not certain.

[forexplayer]

sfish,

So do u always do your taxes through an accountant? This is my first year of forex and i always enjoy doing my taxes online as it is simple and i get to know my refund immediately. The fun with forex is in making the money , but what we dont realise is that by the end of the year we have like thousands of forex transactions to report and it is no fun paying an accountant a big sum of money to do your return(especially if the year bombed out for you).

Thanks for the replies.

[sfish]

I have never paid someone to do my taxes, but have paid for consulting when IRS has questioned my return. I did returns before computers were around.

For the 1000 transaction I keep a spreed sheet and fill in the totals on the forms and attach it to my return this requires sending by mail.

I hope the information was helpful.

[sfish]

top posting this it may be of some help