Query by John S: How do I pay revenue tax on Foreign exchange earnings?
I am doing normal day-to-day trading of EUR/USD, trades lasting a number of hrs on typical. I am not sure if this is considered futures or securities and I as a result will not know how to spend taxes on it.
Reply by Jss
Foreign exchange spot and forward contracts are IRC 988 foreign currency transactions. They are reported in summary form as ordinary gains or losses on line 21 of Form 1040 (Other Revenue or Reduction).
A trader or investor may elect out of IRC 988 for the more tax advantageous IRC 1256 with 60/forty tax therapy.
Currency futures and possibilities listed on U.S. commodities and futures exchanges are by default taken care of as 1256 contracts. They are reported on Type 6781, exactly where they are split 60/40 ahead of getting moved in excess of to Schedule D. Capital reduction limitations of $ three,000 per year apply.
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