It’s been quite difficult to find much information on this so I’ll ask here, if someone makes a lot of money through arbitrage (I.e. taking advantage of pricing discrepancies amongst assets on different exchanges) can they simply pay the taxes as normal income? I found someone awhile ago in which states that arbitrage profit is simply taxed as normal income primarily being that arbitrage IS NOT a short term nor is it (obviously) a long term investment, therefore profits aren’t taxed as capital gains (I.e. NO profits were made via the appreciation of the underlying asset, profits are generated simply from exploiting discrepancies in market value of an asset on different exchanges).
Additionally, is TurboTax Self Employed the correct product to be using for my tax situation (as described above)?
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Any suggestions?
Since the transactions occur at the same time, there is no holding period, hence this cannot be Long term capital gain (holding period is more than 1 year). Arbitrage profit could be taxed as ordinary income or short term capital gain. There is no clear rules regarding taxation on that income, however it must be reported. You can chose whether to report it as business income, or ordinary income. If you report it as business income, you will have to pay SE taxes, but you can offset part of that income with your expenses.
TurboTax self-employment is the best choice for that situation.
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