How Futures Contracts are Taxed

05/13/2022 01:36 PM By Matt Ratliff

As you gain wealth and you build your base of assets, you very quickly learn about the "things" that eat away at that asset base.   In this episode of Matt's Minute, he discusses one of the most insidious "things" eating away at your gains - TAXES.  

Pull out your most recent tax return and watch this short video.  Is it true that the more you gain, the more taxes you pay?  That is hard to deny, but there is more to the tax story.   Futures Contracts are different.

Watch this video and see what it can mean for you.  Let us know what you think in the comments below.  

How am I taxed on Capital Gains?
The tax code is large and complicated, so any research must be exhaustive.  However, normally you calculate realized gains and pay taxes on those gains: long term & short term tax rates.
What is Section 1256?

IRS tax code Section 1256 provides a different way of taxing qualified Futures  (and other) contracts.  Regardless of the holding time frame, qualified contracts are taxed 60% Long term and 40% short term.

What are the benefits of Section 1256?

Trading Futures Contracts under Section 1256, may reduce your taxes, especially if you day-trade.  At 60% Long Term and 40% Short Term, this may reduce your tax burden and in effect, protect gains.  

Should I be doing anything differently?

That is a good question.  If you are currently not trading Futures Contracts, you may want to do some research and estimate the potential benefits.  Contact us so we can show you a real example using our Autotrading programs.

Matt Ratliff