Foreign Currency Trading and Tax Laws

Foreign currency trading can be a great way to make money. There are strict tax laws on currency trading. At home trading is becoming more and more popular with people who wish to get in on the ground floor of this lucrative business. It will behoove a trader to know the tax laws before diving into the foreign market.

The profits and losses that would come from any foreign currency trading are treated like any other profit or loss from a business in the fact that whatever profit is gained from the trading it will be taxed in US dollars. Being a US citizen and trading, for example, Euros only means the profit comes back to the citizen in USD. This profit can be taxed as regular income. Before the fiscal year a trader can opt out of this tax by filling out a form and filing it personally. There are certain types of trades that do not fall under taxable quality.

Reducing taxes on profits is pretty easy. Section 1256 allows for a trader to reduce taxes on short and long-term gains and losses. Foreign currency trading tax laws are strict in a way. It is wise to keep up with any gains and losses made while trading for the purpose of taxes. The time it took to write the different sections of the foreign currency trading laws makes it appear contradictory. Both sections 12565 and 988 read poorly and the years between the writings are the reason.

If a foreign currency trade is under the amount of $200, then there is no need to pay taxes on it. Even if the profit of the trade is going into an investment it will still be taxable if it is over the amount of $200. Before taking on the foreign market with a fist full of dollars, do a little research and find out about the type of trading that is going on. Find out about different fees or charges that might be taxable and the system of profit and loss. This will benefit any trader.