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Tax question
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Tax question

  #1 (permalink)
Elite Member
Kirkland, WA/United States
 
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Tax question

Hey gang,

This is my first year filing taxes after trading futures, so I wasn't sure what to expect, but my effective tax rate seems ridiculously low. I'm filing online using TurboTax, and as far as I can tell I correctly followed the steps to enter 1099-B information for 1256 contracts from my brokers....but the tax penalty came out to about 10% of what I made (I had a profit this year). I know that futures are traded favorably at 60% long term capital gains and 40% short term, but that still seems WAY too low....my effective rate is below receiving everything at long term taxation which is 15% or more, unless I'm completely misunderstanding something.

Not that I'm complaining about my tax burden being LESS than I thought it was going to be, I just don't want the IRS to bite me in the ass later because I'm not entering my data right on TurboTax, or because they're calculating the total due incorrectly.

Does anyone who has been through this before have any insight?

Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That's the other guy's problem. In this building, it's either kill or be killed. You make no friends in the pits and you take no prisoners. One minute you're up half a million in soybeans and the next, boom, your kids don't go to college and they've repossessed your Bentley. Are you with me?
 
  #2 (permalink)
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  #3 (permalink)
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LightWeight View Post
Hey gang,

This is my first year filing taxes after trading futures, so I wasn't sure what to expect, but my effective tax rate seems ridiculously low. I'm filing online using TurboTax, and as far as I can tell I correctly followed the steps to enter 1099-B information for 1256 contracts from my brokers....but the tax penalty came out to about 10% of what I made (I had a profit this year). I know that futures are traded favorably at 60% long term capital gains and 40% short term, but that still seems WAY too low....my effective rate is below receiving everything at long term taxation which is 15% or more, unless I'm completely misunderstanding something.

Not that I'm complaining about my tax burden being LESS than I thought it was going to be, I just don't want the IRS to bite me in the ass later because I'm not entering my data right on TurboTax, or because they're calculating the total due incorrectly.

Does anyone who has been through this before have any insight?

You bet. Hire a tax accountant that understands section 1256. That is extremely cheap compared to getting "bit" as you describe. Congrats on a profitable year, and continued good luck.

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  #4 (permalink)
Elite Member
Cleveland Ohio/United States
 
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LightWeight View Post
Hey gang,

This is my first year filing taxes after trading futures, so I wasn't sure what to expect, but my effective tax rate seems ridiculously low. I'm filing online using TurboTax, and as far as I can tell I correctly followed the steps to enter 1099-B information for 1256 contracts from my brokers....but the tax penalty came out to about 10% of what I made (I had a profit this year). I know that futures are traded favorably at 60% long term capital gains and 40% short term, but that still seems WAY too low....my effective rate is below receiving everything at long term taxation which is 15% or more, unless I'm completely misunderstanding something.

Not that I'm complaining about my tax burden being LESS than I thought it was going to be, I just don't want the IRS to bite me in the ass later because I'm not entering my data right on TurboTax, or because they're calculating the total due incorrectly.

Does anyone who has been through this before have any insight?

Futures have a HUGE tax advantage. Not to mention being much easier than stock reporting!

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #5 (permalink)
Elite Member
Kirkland, WA/United States
 
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kevinkdog View Post
Futures have a HUGE tax advantage. Not to mention being much easier than stock reporting!

Well that's my concern, I know they have a big advantage but this seems too big....my effective tax rate on my futures profits is 12.43%, which is even lower than the long term capital gains rate, so it seems like something is off. But on the other hand I don't want to go pay $400 only to have a CPA tell me that it's completely accurate after all.

Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That's the other guy's problem. In this building, it's either kill or be killed. You make no friends in the pits and you take no prisoners. One minute you're up half a million in soybeans and the next, boom, your kids don't go to college and they've repossessed your Bentley. Are you with me?
 
  #6 (permalink)
Elite Member
Cleveland Ohio/United States
 
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LightWeight View Post
Well that's my concern, I know they have a big advantage but this seems too big....my effective tax rate on my futures profits is 12.43%, which is even lower than the long term capital gains rate, so it seems like something is off. But on the other hand I don't want to go pay $400 only to have a CPA tell me that it's completely accurate after all.

I'm no tax guy, so take my advice with a grain of salt...

I simply enter the Box 12 value from my 1099-B into Form 6781, line 1C or 1 b (if loss), and then just follow 6781 instructions from there.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
 
  #7 (permalink)
Elite Member
Kirkland, WA/United States
 
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kevinkdog View Post
I'm no tax guy, so take my advice with a grain of salt...

I simply enter the Box 12 value from my 1099-B into Form 6781, line 1C or 1 b (if loss), and then just follow 6781 instructions from there.

Yeah I see that part in form 6781, where it says to multiply your total by .40 and .60 to divide it up...but then I don't see what I'm supposed to do with that info, or how to determine the tax portion of that. That's where I get lost.

Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That's the other guy's problem. In this building, it's either kill or be killed. You make no friends in the pits and you take no prisoners. One minute you're up half a million in soybeans and the next, boom, your kids don't go to college and they've repossessed your Bentley. Are you with me?
 
  #8 (permalink)
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LightWeight View Post
Yeah I see that part in form 6781, where it says to multiply your total by .40 and .60 to divide it up...but then I don't see what I'm supposed to do with that info, or how to determine the tax portion of that. That's where I get lost.

The instructions should be clear enough, but then again, what tax instructions are simple? If they aren't clear enough, you could 1) call the IRS for help, 2) go to the IRS for assistance, 3) Try tax software or 4) go to a tax preparer / accountant. That is in order of increasing cost.

Years ago, I remember doing this form by hand (early tax software did not even offer form 6781).

Good Luck!

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #9 (permalink)
Market Wizard
virginia
 
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LightWeight View Post
... I don't want to go pay $400 only to have a CPA tell me that it's completely accurate after all.

you may pay but it's not a guarantee that a CPA knows better than you about tax for trading purpose.

 
  #10 (permalink)
Elite Member
Las Vegas, NV
 
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I not an accountant or tax preparer and you already have been given good advice by the prior post. On my return the numbers from lines 8 and 9 on Form 6781 were transferred to lines 4 and 11, respectively, on Schedule D. And on the dotted line of lines 4 and 11, the words Form 6781 were inserted. Good luck.


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