Basic question

[fxnewbie]

Forgive my ignorance Ryan, I have a basic question.

What do the majority of FOREX traders do, how do they report gains or losses? What is the disadvantage of defaulting to the standard way that most traders report?

Thanks for being here to help us.

[Ryan Gibson]

No apology needed fxnewbie. This is one of the most complicated areas of the tax code.

If you trade “Cash Forex” the income is defaulted to Section 988. What this means for currency traders are that all gains and losses are reported and taxed as ordinary income or loss and NOT capital gain or loss.

You may opt out of Section 988 and take advantage of the more favorable Section 1256 tax rules. However this must be done proactively by keeping a trade log of how each trade will be treated. In other words you cannot wait until April 15th and decide to opt out of section 988.

Which section is the better option for you? Section 988 is the worst case for gains, best case for losses.

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Regards,
Ryan Gibson