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Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
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@bobwest I think of the 'tax thread' as general tax discussions, and this as a specific discussion about a specific situation. Should every post about ES be in a single ES thread?
I shouldn't stress about it either, though easier said than done. I think the amount of work we all put into learning this craft brings with it a certain pride and I don't want to feel penalized unfairly should I happen to become successful with it. It might be a naive perspective I have and it is definitely influenced by the stress of many long days of working and trading that have left me feeling beaten-up.
The majority of articles I've found on the matter seem to be of the "crackdown on fat-cat's tax loophole" variety, without any expertise offered regarding the nature of the underlying financial instruments the bill addresses.
I intend to take the @bobwest POV and rise above the worry since it is out of my control!
We lost it once for a brief second under Obama but a technical correction to a passed bill fixed it before the bill became effective.
Can't seem to find a link to it, but I remember the event distinctly. They snuck it in a bill, it got passed, and a few days later, it was removed by what they called was a "technical correction."
They will always try eliminating the 60/40 rule and establishing a financial transaction tax. Marxists never give up on a failed dream. No matter how empirically bad it is or how often it fails.
Our next item of concern: their desire to eliminate capital gains taxation altogether, making "captain gains" ordinary income.
Imagine trading, living in a high tax state (and a city with its own income tax) and having the privilege of handing over 60%+ of your gains to the tax authorities? You won't be trading for a living. You'd be trading for "the collective." Warm and fuzzy thought, yeah?
Senate Repeals 60/40 Tax Treatment, Then Reverses Decision After weeks of negotiations on a broad package of tax reductions and economic stimulus measures, the Senate on May 15 narrowly approved the Jobs and Growth Tax Relief Reconciliation Act of 2003. During the voting process, the Senate agreed to a manager’s amendment containing a number of revenue enhancements designed to limit the overall cost of the legislation. One of these measures repealed section 1256(a)(3) of the Internal Revenue Code and thereby eliminated the current 60/40 tax treatment applied to gains and losses on futures and options transactions.Responding to an intensive 3-day lobbying campaign from the futures and options industry, the Senate on May 20 approved a “technical corrections” bill that among other things removed the 60/40 repeal from the tax bill. Republican leaders are now negotiating ways to combine the House and Senate versions of the tax bill. The 60/40 repeal is not contained in the House version, and now that it has been struck from the Senate bill, the current tax regime for futures and options is no longer a part of the current tax discussions.The FIA, together with leading U.S. futures exchanges, played an important role in persuading key members of Congress to reject the hastily approved repeal of 60/40. In letters and conversations with lawmakers, the FIA stressed the damaging repercussions of such a change on the markets and their participants, including investors in commodity pools and hedge funds. In addition, the FIA pointed out that the provision would have eliminated the 60/40 treatment, but leave untouched other sections of the tax code that require the assessment of taxes on unrealized gains and losses at year-end. In effect, the Senate bill would have made it impossible for market participants to record any long-term gains or losses on futures and options transactions.
Does this mean that if you hold a futures contract for more than a year, you still have to pay part of your gain at the short term rate? Or does 60/40 apply only to contracts held for less than a year?
Well, this just shows that I should think more before I type.
My own practice is to always hold the "front month," the contract with the greatest volume, which many traders do, and I was thinking in terms of this as I read and replied to the post by @USS Liberty. But this is an inherently short-term strategy, and not the only possible one. You can obviously buy any contract that is in existence, including one that is way out there, so I was dead wrong and should have thought for a second or two before writing. My apologies for so definitively stating something that was also so wrong.
And holding contracts that far out clearly has a role to play in some strategies, or they would not be traded. I was actually thinking about Eurodollars as I wrote, but somehow that didn't make me pause either.
Fortunately, you don't get to stay wrong for long around here. Thanks to you both for waking me up.
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As to the 60/40 rule, I think I'm right there, so that's 1 out of 2. I do not believe that there is any short or long term tax consideration with futures, no matter the holding time.... and this comment seems to have held up at least.
Also, I am not a tax professional, and you should always consult a qualified tax professional, and all the usual disclaimers.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
