Forex gains and losses?

Forum|Forum|6 years ago
May 31, 2019
2 replies
0 views

A quick question.

I trade spot forex through forex.com. I have some losses and I would like to to know how do I file these losses on turbo tax. I printed out my trading transaction history for during 2014, and on the transaction, it reported a loss for the year. I spoke to a cpa through turbo tax and he said that they wouldn't question if I filed my gains or losses through Box B(short term), under Scheduled D.

Here is my questions.

#1-I would like to clarify if its proper for me to continue to file these gains/losses under schedule D since I was never sent a 1099-b form, rather a printout from the forex.com website?

#2- is trading spot currency through forex.com, or fxcm considered a foreign currency futures "contract" ?

#3-I've read over time that i should enter gains or losses under section 988. Am I still entitled to utilize capital loss carry over?

I just like to officially know how to file it properly on turbo tax.

Any help is much appreciated.

TurboTax Premier Windows

Best answer by DJS

Spot FOREX Trade Taxes

By default, retail FOREX traders fall under Section 988, which covers short-term foreign exchange contracts like spot FOREX trades. Section 988 taxes FOREX gains and losses like ordinary income, which is at a higher rate than the capital gains tax for most earners. An advantage of Section 988 treatment is that any amount of ordinary income can be deducted as a loss, where only $3,000 in capital gains losses can be deducted. Section 988 gains or losses are reported on Form 6781.

Report the gains/losses in this way:

Federal taxes - Wages & income - I'll choose what I work on - Less common income - Misc income 1099-A 1099-C - Other reportable income

This default treatment of foreign currency gains is to treat it as ordinary income.

"Except as otherwise provided in this section, any foreign currency gain or loss attributable to a section 988 transaction shall be computed separately and treated as ordinary income or loss (as the case may be)."

I've included a link to the Internal Revenue Code for your reference:

http://www.law.cornell.edu/uscode/text/26/988

DJSAnswer

Employee

Spot FOREX Trade Taxes

By default, retail FOREX traders fall under Section 988, which covers short-term foreign exchange contracts like spot FOREX trades. Section 988 taxes FOREX gains and losses like ordinary income, which is at a higher rate than the capital gains tax for most earners. An advantage of Section 988 treatment is that any amount of ordinary income can be deducted as a loss, where only $3,000 in capital gains losses can be deducted. Section 988 gains or losses are reported on Form 6781.

Report the gains/losses in this way:

Federal taxes - Wages & income - I'll choose what I work on - Less common income - Misc income 1099-A 1099-C - Other reportable income

This default treatment of foreign currency gains is to treat it as ordinary income.

"Except as otherwise provided in this section, any foreign currency gain or loss attributable to a section 988 transaction shall be computed separately and treated as ordinary income or loss (as the case may be)."

I've included a link to the Internal Revenue Code for your reference:

http://www.law.cornell.edu/uscode/text/26/988

Answers are correct to the best of my ability but do not constitute legal or tax advice.**If this post is helpful please click on "thumbs up"**

C

cpgray3

Employee

You don't show where to enter the loss, only that it is a loss. We know that

B

Burt11960

Hi did you ever find out if you can utilize carry forward losses if you used 988? ty

C

cordycep

I would not use 988 to carry forwarding loss., 988 is income not investment.

DaveF1006

Let me clear up some misconceptions as I read these various posts. Section 988 trading gains or losses are ordinary gains and losses and is not treated like investment income thus is not reported on a schedule D. As a result, there are no carryovers to offset future income.

Please read this link posted by Turbo Tax Expert DaveF1006 for details how to report the income. I know it is already listed above but I thought i would post it here also. it is very important to note that this is ordinary and not investment income.

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