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HR 4191 would increase an ES futures trader's transaction costs by about 500% !
It would increase the cost of a $20 stock transaction by about 300% ! It would increase the cost of a $200 stock transaction by about 3000% !
This assumes that the tax will apply to entries and again to exits.
This tax would devastate retail traders, and all the associated businesses. It would dry up liquidity and widen the bid/ask spread. Markets would react with lower values. The sponsor and co-sponsors are obviously clueless about market dynamics.
See attached spreadsheet for an editable what-if table of the actual impact for your situation. There is a tab for futures and one for stocks.
-Tom
The following 5 users say Thank You to tomgilb for this post:
From what I understand, it proposes a tax on all US markets so even if you are abroad and trading something on an exchange in the US, you would pay the tax. It allegedly exempts 401ks and retirement accounts though.
The following user says Thank You to CDesai13 for this post:
The U.S. for sure and Canada I think provide for a foreign tax credit if you pay taxes abroad. Thus, if you live in Canada and pay U.S. taxes on trades here, you can take a credit on your Canadian return for those taxes. The idea is allow people to only pay those taxes in that country while living or doing business there. The suspect that the net tax effect benefits Americans abroad more so than a Canadian with a U.S. brokerage account because our tax rates tend to be lower. Having said that, I have always wondered if the net cost (including foreign taxes) would be cheaper if I opened a Swiss brokerage account...
The following user says Thank You to Dragon for this post:
Another reason I trade Forex...still under the radar
Under Section 1256, forex traders can have a significant advantage over stock traders. By reporting capital gains on IRS Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles), forex traders are allowed to split their capital gains on Schedule D using a 60% / 40% split. This means that 60% of the capital gains are taxed at the lower, long-term capital gains rate (currently 15%) and the remaining 40% at the ordinary or short-term capital gains rate, which depends on the tax bracket the trader falls under (as high as 35%). This results in an average rate of 23%, which is 12% less than the regular (short-term) rate.
Those traders going in to get their tax returns done in the U.S. should at least ask their CPA about filing with the 60/40 rule if they are using a U.S. brokerage account. None of the CPA's at either of the firms I did tax returns with knew of the rule (which doesn't say a lot about the guys I worked with). I don't doubt the bigger local firms, regional, and national firms do it right though. It's more likely that the 60/40 rule is lesser known in the smaller local firms partly because those traders aren't letting their CPA know they trade forex/futures and partly because the CPA just doesn't know the rules yet.
I think its important to report other sources of U.S. income or the DIF score for audit will flag you quick. The IRS can review your return two years in a row before opening the audit in year 3. At that point, the agent could decide to open the audit up in year 1 and year 2 if he thought the same thing was going on then (normally they already know ahead of time). If someone really wants to know how they can dodge forex taxes, the best thing to do is to consult a tax attorney. CPA's aren't bound by the same client confidentiality rules as lawyers so if they were asked to testify against you many would do it to keep their license. Some of the CPA's I know wont even prepare and sign the tax return if the client divulges that kind of info to them during the tax appointment.
The following user says Thank You to Dragon for this post:
he he - by under the radar I didn't mean to dodge taxes.... 2 things certain - death and taxes... I just meant that the rates are lower and forex doesn't seem to be mentioned in this latest gov't attack on profitable people. Just stock and futures. The forex market dwarfs these other 2 in size....
There are currently over 65,000 pages of tax code. No one really knows what the deal is....If they really want you - there is something in those pages to get you - no matter what your situation. I took the relevant code portions to my cpa and said do it like this... so far no problems.
I see what you are saying now. The forex world isn't under the microscope yet regardless of whether we are reporting it right or not. I thought maybe I read that wrong but felt I better mention it anyway because I think there maybe a quiet tendency to not report forex because a person didn't get a 1099. The IRS hired a ton of agents last year when it became widely accepted that the gov't wouldn't be able to raise taxes in the short term. The idea was that if Americans weren't going to accept tax hikes then the IRS could just audit people and collect more taxes.
The following user says Thank You to Dragon for this post:
2 things certain - death and taxes... I just meant that the rates are lower and forex doesn't seem to be mentioned in this latest gov't attack on profitable people. Just stock and futures. The forex market dwarfs these other 2 in size....
