Tax and Record-Keeping for FX

Course 56 of 60 in the forex hub. Dealer statements, a row for every trade, cash in and out, the swap lines. Keep all of it. U.S. spot forex is often taxed under different rules from Section 1256 futures, and a professional should be the one who files it.

Save the statements first

Most traders skip this because it's clerical, and it's the part they regret in April. You need every monthly statement, a row for each trade, the swap lines, and a record of money moving in and out. Without the PDFs, year-end is a guess.

Tax rumors make bad sizing plans. Someone hears that spot forex gets treated kindly, trades bigger, and then can't find the statement when it counts. Size every trade in dollars you can afford to lose. Listed futures go in a separate folder, and the futures course covers that contract. Borrowing the futures tax treatment for a dealer account is usually how the rumor starts.

What goes in the folder

I keep four kinds of record. First, the monthly statement, including the months when nothing happened. Second, a row for each trade with the pair, the size and direction, the open and close dates and prices, and the dollar result. Third, swap in its own column, because it's real money and easy to lose track of. And last, deposits and withdrawals, matched to the bank account or card they came from.

If a line's missing, ask the dealer for it instead of rebuilding it from a screenshot. Forced closes count as well. Under 17 CFR 5.9, a dealer whose customer is short on deposit has to collect more or close positions, and that close is a trade like any other. It goes in the rows, along with any money you sent to meet the call.

The Wednesday swap line

Swap is the overnight charge or credit. On a lot of statements, Saturday and Sunday land on Wednesday's row, so that one line covers three nights. A journal that only counts pips will miss it.

Say the statement shows a $6 overnight debit. Booked three times on Wednesday, that's $18, and $12 of it is for the two weekend nights. A pip log with no swap column misses them.

Pick one week, add the trade results to the swap lines, and see whether you land on the statement's dollar figure. The P&L calculator can do the arithmetic. When the two disagree, trust the statement and go find the missing line.

Spot forex and Section 1256 futures

Regulated futures are Section 1256 contracts. Positions still open at year end are marked to market, and gains and losses are treated as 60% long term and 40% short term no matter how long you held them. That's reported on IRS Form 6781. U.S. spot forex is often taxed under different rules, and a chart that looks the same doesn't put a dealer statement on that form.

Where the 60/40 split applies, it changes how a gain or loss is taxed. It doesn't change the dollars you made or lost, and it's a poor reason to trade bigger. Keep the futures broker's year-end form and the dealer PDFs in separate files, and let a professional decide what each one is.

Software that drops the swap

A spreadsheet or an app is fine, as long as it takes trades, swap and cash movements. If it only records closed trades and leaves the swap out, it'll print a tidy number that the statement contradicts, and that number shouldn't go anywhere near your return.

Export a CSV every month even if you're also saving the PDFs. April is a bad time to find out January won't download. Stock confirmations are their own export. Trades on stock exchanges have different lot sizes and a different holding-period clock, so keep that file in a separate directory.

Hire someone who's done this before

Ask one question before you hire anyone: have you filed a return that included retail forex dealer statements? A practice that mostly does stocks is doing a different job, and one that mostly does futures is doing another. If the answer is no, keep looking while your PDFs are still easy to download.

Emerging-market pairs tend to produce messier swap lines, and the emerging-market risk lesson covers the trading side of that. The folder works the same way for every pair. If you're not sure your firm is a registered U.S. retail forex dealer, look it up on NFA BASIC before a whole year of records piles up.

Where the folder usually fails

The failures are ordinary ones. People trade bigger because a spot lot looks small, take a filing tip off a message board, and then try to piece the year together from a couple of saved screens after the statements are gone. The one that really belongs to this folder is software quietly dropping the swap. Another is adding a futures year-end form to a dealer statement and calling the total your gain.

Tax rules change, and so does what you actually traded, so check with your preparer each year instead of relying on last year's answer. The pair you choose affects the folder too: a cross can pay or charge swap in a currency you'll have to convert to dollars. The lesson on choosing a pair covers that choice.

Count Wednesdays from the statement

Don't estimate a year of Wednesday charges in your head. Multiplying one Wednesday by fifty-two goes wrong for any week you were flat, and it goes wrong again in months with a different number of Wednesdays. The statement has already done the count.

Keep the Wednesday lines and the ordinary nights together. A professional can tell you how those dollars get filed, but nobody can rebuild a swap column you never saved.

Before the folder goes out

• Save every statement, trade row, swap line and cash movement.
• Match one week to the statement before anyone files.
• Keep the futures year-end form apart from the dealer PDFs.
• Hire someone who's filed dealer forex before, and bring the PDFs.

Download the statements while the platform still has them. Educational only. Not a recommendation to buy, sell, or hold any contract or pair.