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Traders Tax Treatment of Futures



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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