You finally start to profit and you are all excited about your just withdrawn cash when it suddenly hits you - what about taxes? How are my profits taxed and where should you report your income? What kind of documents should you fill in and how to keep IRC away from knocking on your door in the middle of a happy sunny day?!
I don't know about other countries (I promise to investigate though!), but US traders are definitely required to pay taxes for foreign exchange profits. It sucks, but that's the law, so unless you are planning to move to Europe or Middle East, you should continue reading!
US forex traders can choose to be taxed under the tax rules of regular commodities (IRC Section 1256 contracts). Another options is to be taxed under the special rules (IRC Section 988 - Treatment of Certain Foreign Currency Transactions) Good thing about Section 1256 for forex traders is that when you report your capital gains on IRS Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles) you have the right to split your capital gains on Schedule D using a 60% / 40% split. What the hell is this split??
60% of the capital gains are taxed at the lower capital gains rate (currently 15%)
the remaining 40% at the ordinary capital gains rate (as high as 35%).
What about Section 988? What is it and how to deal with it? With Section 988 the gains and losses from forex are treated as interest income or expense and get taxed accordingly. There is no 60/40 split and, to make things even more complicated, since forex traders deal with daily exchange rate changes, the trading activity also falls under the provisions of Section 988.
However, IRS isn't THAT evil - daily exchange rate changes can be considered part of a forex trader's assets, a normal part of your business. So IRS gives you an option of rejecting (OPTING OUT) of Section 988 and tax your gains under lovely 60/40 split of Section 1256.
How to get rid of (or OPT OUT) Section 988? There is no need to file anything with IRS to opt out Section 988. However, you are required to do file "internally" before you even start trading for real. What do I mean by internally? You have to keep records about the fact that you are opting out of Section 988. Majority of forex traders wait a year or so to see what kind of profit they get from forex trading and only then claim that they opt out of IRS 988. The last time I checked IRS can't really check whether a forex trader opt out Section 988 at the beginning of his trading activities or later on, and therefore IRS still let this trick pass.
How to pay your forex taxes? US forex trader will get 1099 forms from his US-based forex broker at the end of the year. If your forex broker is based in another country you still have to get the reports and forms from your accounts and get some professional tax advice.
Forex trading is becoming more and more popular and eventually IRS will catch up with some new regulations. Meanwhile, try to enjoy the advantages of the current tax requirements on forex trading. And here is my advice - don't try to skip taxes!
Check out more forex articles, tutorials and forex brokers reviews at http://www.forexexplore.com
Showing posts with label forex tracer. Show all posts
Showing posts with label forex tracer. Show all posts
Tuesday, August 19, 2008
Thursday, August 14, 2008
Forex Trading Systems and How They Can Help You Win the Forex Trading Game
Forex trading systems are actually the strategies that are used by the dealers. These systems are used by them to maximize their profits. Forex traders will always operate on leverage or margin requirements. Usually the margin requirements are 200:1. Simply put the dealer can do trades for $200,000 if they have $1000 in their accounts.
Another system is placing trade through dealers who never ask for margin calls. Margin calls arise when a trader has lost heavily on their deal and now their margin money would be used to substantiate the losses that they have made in the market. Usually the account is suspended when the losses are mounting.
The technical analysis:
One of the forex trading systems is known as the technical analysis. It determines the price of the currency based on the past movements. Most traders use this method to find out what the price movement would be. When is the currency likely to reach a peak, what is the likely lowest point etc., this helps them to enter and exit the markets at convenient levels.
The fundamentals of the price get reflected in the price data. For this other factors or the fundamental factors of the trading systems need not be studied by the traders. Since the price movement has a trend that can be predicted, they are known as signals. This systematic approach lets the trader find the market signal to sell and purchase the currency.
The Fundamental approach:
The fundamental analysis is another system. It's the core elements that affect the economy and in turn the currency and forex markets. The factors are economic, business, government, climatic, political and many other factors that affect the economy. It's not necessary that all factors should affect this system.
This fundamental approach of the forex systems can tell you whether the currency will appreciate or depreciate and which way the currency would move. But it can't give pin point accuracy of the price movement of the currency. Most traders will use both the fundamental approach and the technical analysis to understand the trends and signals.
With forex trading software, it's become very easy to calculate and understand forex trading systems.
For more tips and tricks on how you can make large amounts of money by trading forex, visit our Forex Software Review http://www.forexsoftwarereview.org/ site where we show you the newest and hottest Forex software on the market including our http://www.forexsoftwarereview.org/ Forex Tracer Review.
Another system is placing trade through dealers who never ask for margin calls. Margin calls arise when a trader has lost heavily on their deal and now their margin money would be used to substantiate the losses that they have made in the market. Usually the account is suspended when the losses are mounting.
The technical analysis:
One of the forex trading systems is known as the technical analysis. It determines the price of the currency based on the past movements. Most traders use this method to find out what the price movement would be. When is the currency likely to reach a peak, what is the likely lowest point etc., this helps them to enter and exit the markets at convenient levels.
The fundamentals of the price get reflected in the price data. For this other factors or the fundamental factors of the trading systems need not be studied by the traders. Since the price movement has a trend that can be predicted, they are known as signals. This systematic approach lets the trader find the market signal to sell and purchase the currency.
The Fundamental approach:
The fundamental analysis is another system. It's the core elements that affect the economy and in turn the currency and forex markets. The factors are economic, business, government, climatic, political and many other factors that affect the economy. It's not necessary that all factors should affect this system.
This fundamental approach of the forex systems can tell you whether the currency will appreciate or depreciate and which way the currency would move. But it can't give pin point accuracy of the price movement of the currency. Most traders will use both the fundamental approach and the technical analysis to understand the trends and signals.
With forex trading software, it's become very easy to calculate and understand forex trading systems.
For more tips and tricks on how you can make large amounts of money by trading forex, visit our Forex Software Review http://www.forexsoftwarereview.org/ site where we show you the newest and hottest Forex software on the market including our http://www.forexsoftwarereview.org/ Forex Tracer Review.
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