Upon entering the world of Forex, a beginner might be blinded by the allure of successful trades. That is a common thing for many people. They see Forex as a possibility for financial success. However, that is not the only benefit of
Forex. In fact, a beginner may not know it, but he has massive potential to generate tax benefits. A beginner is advised to know these benefits so they can effectively utilize Forex to their financial advantage.
If you invest on futures or options, then you belong to the IRC 1256 contract. This contract from the IRS would mean that there is a lower consideration for the trader at 60/40. This means 60% of losses and gains are reflected as long term, while the other 40% of losses and gains are reflected as short term. This offers a couple of benefits. First, since traders make several trades each day, 60% of these are considered as long term. If the stocks traded are less than 1 year old. They are still considered within a 35% short-term rate. The tax rate is even smaller for options and futures
If you are someone who trades over the counter, you are categorized on the IRC 988 contract. This is a contract set for Forex transactions that are settled within 2 days so that means the IRS apply regular gains and losses. Thus, if you find spot trading more appealing, you will be considered for this kind of tax benefit. The good thing about this is that you qualify for tax protection. If you had big losses at the end of the year trade, you get a big benefit. All losses will be considered ordinary and not just the initial $3000.
If you would look into these tax contracts, the latter one tends to be easier to understand and apply compared to IRC 1256 since the tax rates are the same for both losses and gains, which is not good for gains but quite good for big losses. The IRC 1256 favors the net gain more than the losses but of course, it all depends on how the trader anticipates the gains or losses. It is very important to make a decision on what tax contract to consider.
Taxation is something that could increase your gains and reduce losses considerably so it is vital to make smart decisions by asking a good accountant for insights and advice.
Learn Forex only from the best. Discover the secret to succeeding in foreign exchange and explore your full potential as a trader. Visit our site now to get the latest tips, and news on Forex and regulated MT4 broker
Article Source: http://EzineArticles.com/?expert=Muhammad_Ahmad_Siddiqui
No comments:
Post a Comment