First, set your sights on all available tax-related breaks by attempting to qualify for trader tax status. According to Robert A.

Know where your tax breaks apply. Qualifying for trader tax status is more difficult for part-time traders vs.

How Are Futures & Options Taxed? | Investopedia

Green outlines the two-part test for trader tax status qualification: He says that a simple definition is that you spend more than four hours per day trading, every market day. Traders should support their claim of trader tax status by adding a detailed footnote to their tax return.

With summary reporting for futures on Form , which is prepared by your broker, Green says accounting is a snap for pure futures traders.

Enter that summarized amount on line 1 of Form ; which is used to report gains and losses from futures contracts.

Schedule D includes a box for the net from Form The number of types of derivatives contracts has changed dramatically from when futures tax law was first written.

The best news for futures traders is U. The effective maximum tax rate for gains on U. Single stock futures and stock options are treated like stocks, which fall under the securities category and the higher tax rate.

Section (Futures) Tax Reporting

Taxing foreign futures contracts is a little more complicated. Trading futures contracts listed on non-U. If certain foreign futures or forward commodity contracts are held for longer than six months, such contracts could be taxed wholly as long-term capital gain and benefit from the reduced tax rates on such gains. He also says other foreign futures exchanges without such an IRS ruling, such as Liffe and Eurex, if they believe they meet the standards necessary to be considered a qualified board or exchange, should request an IRS ruling so contracts on those exchanges can be treated as Section contracts.

Foreign currency forward contracts that are also traded as a U. Traders who have securities, futures and forex combined into one account, or who have trading accounts in foreign countries, face unique challenges, Green notes. Foreign accounts are often held in foreign currencies, [creating] further accounting and tax complications.

There is a tax reporting method allowed in some cases using average foreign exchange conversion rates for the tax year. Green notes the importance of Alternative Minimum Tax AMT planning with possible changes coming out of Congress in the coming year. Congress is attempting to repeal the AMT tax, and to pay for it by raising tax rates on upper-income taxpayers.

To avoid AMT, Green suggests preparing an estimated tax return before year-end to see if you trigger it. But if you trigger AMT, prepaying some or all of your state income taxes is a big mistake, since state taxes are not deductible for AMT.

Instead, you can pay just enough fourth-quarter estimated state income taxes before year-end to equal the AMT threshold and pay the balance when due in the following year. Green says to be honest with the IRS, but not intimidated by them. If you qualify, apply for trader tax status and defend your right to it.

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Silver holding huge commercial short. Retail is in trouble because of economic conditions. What does this mean for the markets? Election play in gold options. Trading can be taxing FROM ISSUE. Making the grade Qualifying for trader tax status is more difficult for part-time traders vs. AMT PLANNING Green notes the importance of Alternative Minimum Tax AMT planning with possible changes coming out of Congress in the coming year.

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