Forex

I've a question for those of you who've endured the IRS at tax time.

Assuming I don't have trader status from the IRS, if I have profits of $20,000 for the year and losses of $10,000 my understanding is that I can only deduct $3,000 of the losses and carry the remaining $7,000 to subsequent years. My question is this: Will I have to pay taxes only on the gain of $20,000, or on both the gain AND the loss of $7,000 that I couldn't deduct. I am assuming that the IRS would say that I had to have the $7,000 in order to lose it, so they're going to tax me on it. Doesn't seem right, but then what is right has nothing to do with the IRS.

Thanks in advance for any replies from you who have been through this already.

If I have profits of $20,000 for the year and losses of $10,000 my understanding is that I can only deduct $3,000 of the losses and carry the remaining $7,000 to subsequent years.

That makes no sense. What TYPE of losses and gains do you mean? If you have 20000 in gains and 10000 in losses, you only have 10000 of real net gains. That is assuming both are equal in kind. That is, both are ordinary income or capital gains.

You can treat FOREX transactions in one of two ways:

1) As section 1256 contracts using form 6781 getting 60/40 preferrential capital gains taxation and opting out of IRC 988.
2) As ordinary income under IRC 988.


that's it under current tax law. Either it's ordinary income or treated as a futures-like contract.


My question is this: Will I have to pay taxes only on the gain of $20,000, or on both the gain AND the loss of $7,000 that I couldn't deduct.


That depends on the sort of gains and losses. I don't understand the question. How does one pay taxes on a deductible loss?

I am assuming that the IRS would say that I had to have the $7,000 in order to lose it, so they're going to tax me on it.

Yes, if I understand correctly. FOREX money is after-tax, unless it's in some sort of qualified plan. So it's already been taxed. No need to pay taxes again, unless it's from a net gain

Doesn't seem right, but then what is right has nothing to do with the IRS.


yes it does. The rules aren't that complex. they're numerous

Thanks in advance for any replies from you who have been through this already.


I don't think I helped very much. Can you ask the question again? I didn't understand what you were getting at.