Started trading forex this year on OANDA (spot forex). Made about $18K in gains so far. Now doing my research on taxes and I'm completely lost.
I keep seeing two different tax sections mentioned - 988 and 1256. What's the difference? Which one applies to me? And I've heard something about making an "election" but have no idea what that means or how to do it.
Help please!
Good question. They're treated separately. Forex futures automatically get 1256 treatment regardless of your election. The 988 opt-out election only affects your spot forex positions 🤷.
So you could theoretically have spot forex under 988 and futures under 1256 which sucks, or both under 1256 if you make the election. You just can't get futures under 988 - that's not an option.
Final note: whatever you decide for 2024, make sure you keep detailed trade records. Most forex brokers provide terrible tax reporting compared to stock brokers. You'll likely need to track everything yourself and calculate gains/losses manually.
State tax nexus is a trap for remote workers. If you're working from home in a different state than your employer's location, you might owe taxes in both states. Check your state's reciprocity agreements.
If you're getting threatening IRS notices, the first thing to do is verify they're real. Call the IRS directly at 1-800-829-1040 (never the number on the letter) and reference the notice number.