Are there specific tax advantages for futures trading?

Yes, futures trading offers specific tax advantages in the United States. Here's a brief summary:

1. Favorable Tax Treatment:

• Section 1256 Contracts: Futures contracts are classified as "Section 1256 contracts" by the IRS.

• 60/40 Tax Rule: Gains or losses from these contracts are taxed as follows:

  • 60% at the long-term capital gains rate, which is generally lower.

  • 40% at the short-term capital gains rate, equivalent to your ordinary income tax rate.

  This applies regardless of how long you hold the contract.

2. Mark-to-Market Accounting:

• Year-End Reporting: At the end of each year, all open futures positions are treated as if they were sold at their current market value. This "mark-to-market" process means you'll report gains or losses annually, even if you haven't closed the position.

3. Potential Loss Benefits:

• Carrying Back Losses: If you incur a net loss from Section 1256 contracts, you can elect to carry it back up to three years to offset prior gains from these contracts, potentially resulting in a refund for previous taxes paid.

Important Considerations:

• Consult a Tax Professional: Tax laws can be complex and subject to change. It's advisable to seek guidance from a tax advisor to ensure accurate reporting and to understand how these rules apply to your specific situation.
• Mark-to-Market Rule: At the end of each year, Section 1256 contracts are treated as if they were sold at their fair market value. This means you'll report gains or losses even if you haven't sold the contracts.

For detailed information, please refer to IRS Publication 550 (https://www.irs.gov/publications/p550#en_US_2023_publink100010327)  and the instructions for IRS Form 6781 (https://www.irs.gov/forms-pubs/about-form-6781) .

Important Note: AMP does not provide tax or legal advice. Please consult with a qualified tax advisor for guidance tailored to your circumstances.