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
Report the gains/losses in this way:
In TurboTax, open your return and follow these steps:
- Click on Federal in the left hand column, then on Wages and Income on top of the screen
- Scroll down to All Income, locate the Less Common Income section
- Click Show more and click Start next to Miscellaneous Income at the bottom
- On the next page, click Start next to Other Reportable Income (Losses are reported as a negative number).
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