Paying taxes is really the last thing a new foreign exchange trader should care about, but it is definitely a serious issue for any profitable trader. Correct handling of one’s taxes is not only ethical but will help to avoid unnecessary problems and expenditures in the future. I am not a certified tax advisor, and the aim of this post is not to explain the details of paying taxes on Forex profits. The post is just a combination of a short overview of some tax modes existing in the industry and a poll for traders to share info on their situation.
Some countries, such as the USA, Canada, and the United Kingdom do not offer an option of tax withholding by Forex brokers. At the same time, many European countries (such as Germany, Italy, and Russia) make it simpler for traders to pay their dues by assigning the fiscal agency status to the brokerage company. In the majority of developed countries, currency trading is taxed at capital gains rates while the rest apply a normal personal income tax rate to such profits.
US traders have two regimes at their disposal: 1256 contracts and 988 contracts. The former is the default one for futures/options trading (which is taxed as 60%
The United Kingdom and Ireland offer an opportunity for FX traders to earn tax free profits — spread betting. Unless it is the individual’s primary source of income, spread betting is considered gambling in those countries and is not taxed at all.
My own situation is similar to what is normal in most of the European countries. If I were to trade with a broker based in my country, it would withhold my taxes. As I trade with the foreign brokers, I have to pay taxes myself. The rate is the same as on other income and I pay only for what I withdraw from the broker’s account to my bank. And how about you?
If you want to share your thoughts on paying taxes on Forex trading profits, please use the commentary form below to tell us more.