{"id":7423,"date":"2019-04-03T11:24:36","date_gmt":"2019-04-03T15:24:36","guid":{"rendered":"https:\/\/optimusfutures.com\/tradeblog\/?p=7423"},"modified":"2019-04-03T11:24:36","modified_gmt":"2019-04-03T15:24:36","slug":"tax-advantages-of-trading-futures-vs-stocks","status":"publish","type":"post","link":"https:\/\/optimusfutures.com\/blog\/tax-advantages-of-trading-futures-vs-stocks\/","title":{"rendered":"Tax Advantages of Trading Futures Vs. Stocks"},"content":{"rendered":"

This article on Tax Advantages of Trading Futures Vs. Stocks is the opinion of Optimus Futures.<\/p>\n

\"Tax<\/a><\/p>\n

Tax season is here, with the April 15 tax day just a few weeks away. If 2018 was your first year trading futures, then you\u2019re probably a bit concerned about the tax implications, not knowing what to expect, worrying about the tax-related complexities that may befall you come Uncle Sam\u2019s reckoning and payday.<\/p>\n

Don\u2019t be too worried. Yes, you will have to pay taxes on your capital gains if you ended 2018 with a net profit, but the process (at least compared with stocks) is a bit different, and in certain respects, possibly much less complicated.<\/p>\n

After all, trading futures does have certain tax advantages, and that\u2019s what we\u2019ll cover in this article. There are a few benefits that just might work in your favor, so pay attention.<\/p>\n

Before we continue, please note the following disclaimer: The information presented below should not be construed as tax advice. We recommend that you consult with a qualified tax specialist or tax accountant to ensure you receive the most accurate information on the current tax laws and to seek the most favorable tax treatment possible.<\/em><\/p>\n

One Net Sum of Gain or Loss<\/h2>\n

Have you ever day traded stocks, as in lots<\/em> of buys and sells, all accumulating toward an itemization mess piled up by the end of the year? If you have, then your first tax reporting experience might have been quite a shock. Chances are that you found yourself having to report every single trade you placed–itemizing each buy and sell–for every stock you\u2019ve traded. And if you\u2019ve placed hundreds of trades over the course of the year, you certainly know how complicated and overwhelming the tax reporting process can be.<\/p>\n

Believe it or not, you might not have to deal with this when trading futures, whether you\u2019ve traded one position or hundreds of positions over the course of the tax year. Fortunately, with futures, your brokerage sends you a 1099 B form. That\u2019s right, one form, one figure: your net result from trading–gain or loss. You don\u2019t have to report every single trade <\/em>you\u2019ve placed, possibly making the 1099 B a much preferable alternative, especially if you are an active trader.<\/p>\n

Capital Gains May Favor the Futures Trader<\/h2>\n

You bought stock XYZ in January 2018 and sold it in December 2018 for a profit of $20,000. Coincidentally, you traded the E-mini S&P 500 and made an identical net profit of $20,000. Come tax time, you may owe Uncle Sam $4,400 for your capital gains tax on stock XYZ. For your E-mini S&P 500 trades, however, you own only $3,560.<\/p>\n

Why is it, in the example above, that you are paying less in capital gains tax for futures versus stocks? Let\u2019s back up and take note that capital gains taxation varies according to the kind of trade you place (long-term or short-term), the asset class you trade (stocks, futures, etc.), and your personal income tax rate.<\/p>\n

Generally, stocks that are held for less than a year are subject to short-term capital gains<\/em>, and the short-term capital gains rate is pegged to your personal income tax rate. Futures profits, on the other hand, are subject to the 60\/40 rule<\/em>, meaning that 60% of your profits are taxed according to long-term capital gains while 40% are taxed according to short-term capital gains.<\/p>\n

In our hypothetical example above, we placed you at the 22% tax bracket (Married Filing Jointly with an annual income between $78,951 – $168,400; or Single with an annual income between $39,476 – $84,200).<\/p>\n