Tax Advantages For Trading Futures | AnthonyCrudele.com (2024)

Do Futures Traders get Tax Advantages that Stock Traders don’t? Yes, they do. In this video I chatted with Director of Education at CME Group, Dave Lerman about the Tax Advantages & Efficiencies Futures Traders get.

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Futures trading offers distinct tax advantages for traders when compared to stocks and ETFs. In particular, Micro E-mini futures provide a way to trade equity futures markets with a reduced financial commitment, allowing new traders to benefit from the tax advantages futures can offer.

Here are 3 ways futures have the edge over stocks & ETFs when tax time comes.

1. Capital Gains Advantages. While short-term capital gains from stocks or ETFs are taxed at your ordinary income tax rate, futures are taxed using the 60/40 rule: 60% are taxed at the long-term capital gains tax rate of 15%, while only 40% of your short-term capital gains are taxed at your ordinary income tax rate. Short-term capital gains are profits from positions held less than 1 year and long-term capital gains are profits from positions held more than a year.The example below demonstrates two traders who both made $100 in capital gains. Trader A made his profit by trading stocks short-term, and Trader B made her profit day trading Micro E-mini futures. Since all of Trader A’s $100 profit is taxed at his normal income tax rate of 22%, he’s left with $78 after taxes. Having made her profit from futures trading, only 40% of Trader B’s profits are taxed at her normal income tax rate of 22% and the remaining 60% are taxed at the long-term capital gains rate of 15%. This leaves her with $82.20 after taxes, retaining over 5% more profit than Trader A.

2. Capital Losses AdvantagesSimilar to stock trading, futures traders can deduct up to $3,000 in capital losses from their annual income as long as losses outweigh the gains for the year. However, the 60/40 rule also applies to capital losses incurred from futures trading. Additionally, you can use losses to offset gains from futures trading. In fact, you can carry back losses up to 3 years to offset gains from previous tax years.

3. Futures Are Exempt from the Wash Sale RuleWhen trading equities or ETFs, the wash sale rule prevents a trader from claiming losses on a particular stock if he repurchases the same stock within a 30-day period of taking the loss. This presents a significant tax obstacle for active stock traders. For futures trading, however, the wash sale rule does not apply. This can be advantageous for active futures traders who might buy and sell the same contract multiple times per day.

Information in this post came fromCME Group.

If you enjoyed this video here are more videos on the Benefits of Futures:

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Using Micros For A More Precise Hedge On Your Portfolio

Pattern Day Trader Rule Doesn’t Apply To Futures

What is Rollover in Futures?

Bitcoin Futures vs Bitcoin Spot

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