Tax Reporting for Forex Trading: Claiming Profits & Losses

When dealing with taxes, you have to claim both your FOREX profits and losses. While some other countries do not tax FOREX profits, the United States does. Currently, FOREX traders have an arrangement that is actually more favorable than other forms of investments. Here are the basics of how to claim your profits and losses in FOREX.

How to File

Filing your profits and losses in FOREX requires a special form with the IRS. You will need IRS form 6781 in order to report your gains and losses. Under section 1256 of the IRS code, you can opt out of section 988. Do not be afraid to talk to a tax professional because the tax codes can be confusing.

When businesses profit from the exchange rates that are part of doing business overseas, they are taxed on that gain. However, for FOREX traders, the IRS is currently allowing them to opt out of this section. That allows them to split their profits in a 60/40 manner and have them taxed at better rates. This works out to an average of 23% taxation on the gains from your FOREX account. This method can save you some substantial money on taxes overall.