By default, retail FOREX traders fall under Section 988, which covers short-term foreign exchange contracts like spot FOREX trades. Section 988 taxes FOREX gains and losses like ordinary income, which is at a higher rate than the capital gains tax for most earners. An advantage of Section 988 treatment is that any amount of ordinary income can be deducted as a loss, where only $3,000 in capital gains losses can be deducted. Section 988 gains or losses are reported on Form 6781.

Report the gains/losses in this way:

Federal taxes - Wages & income - I'll choose what I work on - Less common income - Misc income 1099-A 1099-C - Other reportable income

This default treatment of foreign currency gains is to treat it as ordinary income.

"Except as otherwise provided in this section, any foreign currency gain or loss attributable to a section 988 transaction shall be computed separately and treated as ordinary income or loss (as the case may be)."

I've included a link to the Internal Revenue Code for your reference:

http://www.law.cornell.edu/uscode/text/26/988

To report forex trading under Section 988, then you can import the data from your broker directly with a program such as GainsKeeper. or enter the information manually into TurboTax as Miscellaneous Income:

• Click Federal Taxes -> Wages & Income and scroll down to Less Common Income
• Go to the last selection, Miscellaneous Income and click Start
• Go to the last option, Other reportable income and click Start
• When it asks, "Any other reportable income?" say yes and then type in a description and the amount to report it on your tax return. 

Be sure to indicate in the description that this is a total of your Forex trades and enter an amount for either a gain or a loss. If you lost money, report it with a negative number. For an example if you lost $12,000, enter this as -$12,000. Be sure to keep your documentation regarding the forex trades if the IRS requests proof.