Talk to your tax specialist before making your first Forex trade

For those of you who are testing our Forex Mini  strategies you  need to talk to your Tax professional before you make your first trade during the fiscal year. There is an internal election you need to make and if you don’t you can be stuck with a tax treatment you do not like.   

There are two different treatments of Tax for Forex which can be different than the tax treatment for commodities, futures, stocks and options.   In general you have a choice 988 which is a pure trading expense model which allows greater losses to be applied same year or a partially capitalized model which provides favorable tax treatment if you make money but seems more complex in accounting.   You need to elect or specify which tax treatment you will use for the year before you make your first trade for the year.

There is also special complexity if you are trading multiple classes of product such as a mix of Stocks, Forex, Options, Commodities and Futures.  Some of these require Section 1256 treatment while others could be covered under either Section 988 or Section 1256.

I am not an expert in Tax so talk to your accountant or tax attorney before making your first Forex trade.  If you make a lot of money then one approach could save you a more in taxes.  If you loose a lot of money then the other approach will save you a lot in taxes.

Our general model for using our algorithms is a % share of your net profit from trading.    You need to talk to your Tax specialist to ensure the tax treatment you have chosen will allow you to expense these payments as a trading cost.   There is a related issue a classification as professional traders which can change how trading expenses can be treated.

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