The IRS treats trading profits differently depending on the asset class and your tax election. Understanding Section 1256 contracts and Section 988 can save you thousands in tax liabilities.
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1. Identify Your Asset Class
Forex is generally taxed under Section 988 (Ordinary Income), while Futures and some Options qualify for 60/40 capital gains treatment under Section 1256.
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2. Understand the Wash Sale Rule
Avoid the common mistake of claiming losses on stocks or options if you repurchase the same security within 30 days.
Critical Mistakes to Avoid.
- »Ignoring the Wash Sale rule on stock options
- »Failing to opt-out of Section 988 for forex if capital gains treatment is more favorable
- »Mixing business and personal trading expenses
Our Tax Efficiency Philosophy
We advocate for rigorous record-keeping and professional tax planning as part of your business operations.
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