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How do I report section 988 (forex trading) losses

Forum|Forum|6 years ago
May 31, 2019
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Best answer by RonnelP

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

R

RonnelPAnswer

Employee

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

B

bobliu123

Employee

How do you send the support for the trades to the IRS? I want to file the return through efile. Or is support not necessary? I have many, many trades.

R

RossCSC

I use Turbotax premier desktop version 2022 version. .You go to:

- Wages and income.

- Choose what to work on

- Less Common income / Miscellaneous Income, 1099A, 1099-c

- Then choose Other reportable income

- Then choose Yes for any other wages

- then put in your Description and the gain or loss amount

G

GeorgeM777

When you get to the screen Miscellaneous Income, scroll to the bottom and select Other reportable income. You don't want to enter wages so if you see a screen asking about wages you need to click the Back button and get to the screen where you can select Other reportable income. You will be able to enter a negative number as well as a description of your loss.

@RossCSC

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