The universe of futures presents highly leveraged opportunities. However, if you are a trader considering futures trading, you should have a fundamental understanding of the way that futures are taxed. In this blog, we will be covering exactly that.
How are Futures Taxed?
Compared to equity traders, future traders benefit from a more favorable treatment of taxes. According to section 1256 of the IRC (Internal Revenue Code), ‘any futures contract traded on a U.S exchange, foreign currency contract, dealer equities option, dealer securities futures contract, or non-equity options contract are taxed at 60% of the long-term capital gains rates and short-term capital gains rates at 40% - regardless of how long the trade was held.’ Since the highest capital gains rate for the long-term is 20%, while the maximum short-term rate stands at 20%, the average maximum combined tax rate would be 26.8%.