How Much Does the IRS Tax Your Trade Winnings?

[ctvas 10]

How much does the IRS tax your trade winnings?

[i-tom 10]

Can't say about winnings? I earn my money.

[WillemDrees 10]

Now there's a question i always wanted to reply to. I live in the Netherlands, so i haven't a clue how much the IRS taxes trading profits, i've read numbers between 20 and 30%...

 

The reason i love to to reply is i still find it unbelievable that the Dutch IRS taxes trading profits a tiny 1.2%......and that's on profits OVER €25K/year. Amazing but true. This has to change at some point but it's been like this for ages.

[harveyro 10]

Depends upon what you trade and how long you own the asset. Also, don't forget about wash sale rules for stocks. Futures get section 1256 treatment (60/40) and don't have wash sale issues.

[RandallS 10]

If trading is your main source of income (ie if it's your primary business and you run it as one), you don't pay self-employment taxes and your profits (after business expenses/deductions) are taxed on the same tax rate as anyone else. Pub 550: Special rules for securities traders.

[financeadvertise 10]

If trading is your main source of income (ie if it's your primary business and you run it as one), you don't pay self-employment taxes and your profits (after business expenses/deductions) are taxed on the same tax rate as anyone else. Pub 550: Special rules for securities traders.

 

Trading does not have to be your main source of income. You need to be able to prove to IRS that your trading activity amounts to business. 1000 trades per year is an important baseline mentioned in various sources, but this is not a hard rule.

[RandallS 10]

Trading does not have to be your main source of income. You need to be able to prove to IRS that your trading activity amounts to business. 1000 trades per year is an important baseline mentioned in various sources, but this is not a hard rule.

 

The key here is being able to show it is a business and not a hobby.

 

Here is the subsection in Irs Pub 550, page 76.

 

Special Rules for Traders in Securities:

 

Special rules apply if you are a trader in securities in the business of buying and selling securities for your own account.

 

To be engaged in business as a trader in securities, you must meet all the following conditions.

 

• You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation.

• Your activity must be substantial.

• You must carry on the activity with continuity and regularity.

 

The following facts and circumstances should be considered in determining if your activity is a securities trading business:

• Typical holding periods for securities bought and sold.

• The frequency and dollar amount of your trades during the year.

• The extent to which you pursue the activity to produce income for a livelihood.

• The amount of time you devote to the activity.

 

If your trading activities do not meet the above definition of a business, you are considered an investor, and not a trader. It does not matter whether you call yourself a trader or a “daytrader.”

 

Note. You may be a trader in some securities and have other securities you hold for investment. The special rules discussed here do not apply to the securities held for investment.

 

You must keep detailed records to distinguish the securities. The securities held for investment must be identified as such in your records on the day you got them (for example, by holding them in a separate brokerage account).

 

It goes on to discuss how to file in such circumstances, and the need to make a mark-to-market election, etc.

[Arthur 10]

I think its quite high in case of earning of this type. and it depends from country to country, ranging from 10% to even 35% .

[pbylina 10]

I think for futures its "60/40" rule. Which means 60% is taxed at 15% and 40% is taxed at 25%. Thats for US. Does anyone know how much it is in Europe?