Forex gains and losses?

[akc19911]

A quick question. 

I trade spot forex through forex.com.  I have some losses and I would like to to know how do I file these losses on turbo tax.    I printed out my trading transaction history for during 2014, and on the transaction, it reported a loss for the year.    I spoke to a cpa through turbo tax and he said that they wouldn't question if I filed my gains or losses through Box B(short term), under Scheduled D.  

Here is my questions.

#1-I would like to clarify if its proper for me to continue to  file these gains/losses under schedule D since I was never sent a 1099-b form, rather a printout from  the forex.com website?  

#2- is trading spot currency through forex.com, or fxcm considered a foreign currency futures "contract" ?

#3-I've read over time that i should enter gains or losses under section 988.  Am I still entitled to utilize capital loss carry over? 

I just like to officially know how to file it properly on turbo tax.

Any help is much appreciated. 

[DJS · Accepted solution]

Spot FOREX Trade Taxes

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

[cpgray3]

You don't show where to enter the loss, only that it is a loss. We know that

[akc19911]

thank you very much for your input.  My other question is, instead of  filing with section 988, am I able to file retail forex gains/losses under 1256?  thank you.

[nmonroe121]

Most helpful article I found on whre to enter for 1256: <a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/2315617-i-have-a-2013-forex-loss-of-10-000-last-year-i-used-a-1256...>

[petervanpelt]

What about section 1256 or Form 4989 - Schedule D?

[cpugh780]

Exactly how do I report FOREX trades in TurboTax Premium?

[DaveF1006 · Accepted solution]

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.

[1928banana]

If I also have future contract losses can I claim them in this section with forex?

Thank you.

[cordycep]

Hi

       For reporting retail forex trading(spot) LOSS/GAIN . Are you saying I have  a choice either use sec988 or form 6781 ?

thanks for your assistance.

Huy

[Burt11960]

Hi did you ever find out if you can utilize carry forward losses if you used 988?  ty

[cordycep]

I would not use 988  to carry forwarding loss.,  988 is income not investment.  

[DaveF1006]

Let me clear up some misconceptions as I read  these various posts. Section 988 trading gains or losses are ordinary gains and losses and is not treated like investment income thus is not reported on a schedule D. As a result, there are no carryovers to offset future income.

Please read this link posted by Turbo Tax Expert DaveF1006 for details how to report the income. I know it is already listed above but  I thought i would post it here also. it is very important to note that this is ordinary and not investment income.

[Burt11960]

ty   

[cordycep]

Greeting:

      I understand the forex reporting as ordinary income in MISC INCOME section.  From this message board someone said to also fill out the form 6781 which is CONTRACT & STRADDLES  .  So I am confuse because I dont deal with trading futures contract?

thanks for your help.