When newcomers begin to trade futures, taxes probably are not at the top of their list of concerns. But there are tax advantages with futures trading, in addition to the benefits of leverage, short selling, and the like that futures offer.
Several caveats should be mentioned before getting into a discussion on the tax treatment of futures and currency transactions:
For tax purposes, it is important to determine whether a contract comes under Section 1256 of the Internal Revenue Code (IRC) because gains or losses from these contracts are treated differently than those from stocks or interest-bearing instruments.
Section 1256 includes any regulated futures contracts, foreign currency contracts, nonequity options, and dealer equity options. A regulated futures contract is a ...