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I have been filing as a trader for many years and have always
reported by futures profits on Form 6781 and received 60/40 tax
treatment while deducting expenses on Schedule C. Never been
audited, knock on wood..
I attach an excerpt taken off the net:
Quote:
To start, you may file as a trader if you believe you meet the
stringent trader requirements we've spelled out in previous
stories.
As a trader, you can mark to market your trades, which means
you must value your holdings as though they were sold at fair
market value on the last business day of the tax year. As a
result, traders have the option of taking an unlimited amount of
losses, which can be used to offset any income. Nontraders'
losses are limited to the amount of their capital gains, plus an
additional $3,000 a year.
But you must plan ahead to make the mark-to-market election.
If you did not make it on your 1998 tax return, you cannot
mark your trades to market for 1999. If you want to mark to
market your trades this year, you'll need to make that election
by April 17. But if you only trade S&P 500 futures and options
on the S&P 100 (OEX), you will not have to worry about
making this election, says Gail Winawer, tax securities partner
at American Express Tax and Business Services in New York.
In the tax world, these are known as "section 1256 securities,"
named for section 1256 of the tax code, which governs how
they're treated. And section 1256 says that whether or not
you're a trader, any open positions in these securities must be
marked to market at year-end anyway, and your gains and
losses are subject to the 60/40 rule. The 60/40 rule says that
60% of gains and losses from these securities is long-term and
40% is short-term, regardless of the actual time you've held
these securities. The rule applies to regulated futures contracts,
foreign currency contracts or options on stock index futures and
broad- based stock indices, such as the S&P 100.
You must report your gains and losses from these securities on
Form 6781-- Gains and Losses From Section 1256
Contracts and Straddles. Your totals will flow up to Schedule
D-- Capital Gains and Losses.
End quote.
JFB
NYC
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