If you thought that you could do forex trades and avoid taxes, think again. Forex trading is also taxed in the U.S. So, if you try to avoid paying your taxes or miss your tax implications, you can get into serious legal trouble. Before you open account with a low spread forex broker, you should be aware of how forex trading is taxed in the U.S. This article will clarify any confusion regarding your tax responsibilities when trading forex, so let’s get started.
How Are Forex Trades Taxed in the U.S.?
Forex trading taxes can be quite difficult to understand, especially when you are just beginning your forex journey. Basically, when you sell a security at an increased price compared to the original purchase price, you will get taxed. How much you pay in taxes will be influenced by your tax bracket. For earnings up to $10,275, you can expect a 10% deduction, whereas single filers who earn $539,000 or more will have a 37% deduction.
But if you are not a U.S. citizen and you are trading forex from another country, the taxation system is different. In the U.K., there is a 20% capital gain tax on every single gain with the exception of residential property. Many traders use a 0% tax rate spread betting to work around it. Meanwhile, other countries don’t have any personal income or capital taxes.
How Can You Calculate Your Forex Trading Tax?
Are you new to forex and trying to calculate your forex taxes? Here are the steps you’ll have to go through.
- Find out what your tax residency status is. Depending on where you are from, you may either be a resident or a non-resident.
- Subtract your trading expenses from your trading profits to calculate your taxable income. The United States allows some traders to deduct some of the costs related to trading, like the price of trading education or a trading platform. Try to find out if you qualify for these deductions as well.
- Consider the currency exchange rates. There are price fluctuations in exchange rates when you make a profit conversion, so you should also consider that perhaps you owe more or less taxes than you thought.
Things to Keep In Mind
Here are a few things to consider when dealing with forex taxes:
- Always maintain good records to save valuable time when preparing your taxes when the season comes.
- Don’t miss the deadline. Always check the data so you know the last day you can file your taxes; otherwise, you will face consequences.
- Don’t avoid taxes just because you are doing over-the-counter trading. In the end, the IRS will find out, and you will regret having to deal with tax avoidance fees.
Final Thoughts
Forex trades are taxed in the U.S., depending on your tax residency status. A single filer may deal with a 37% deduction for earnings of $539,000 or more. You can calculate your taxes by subtracting your trading expenses from your profits. Make sure never to miss the deadline for filing taxes.
