How is tax worked out on futures for international investors?

[sopodo]

Hey Guys,

I am from the United Kingdom and soon will be setting up a brokerage account with a US futures broker. I was wondering how much tax you pay and even if I would be exempt from tax?

I imagine if I can keep the funds in the brokerage account then I wouldn't pay tax until I withdraw the funds to a bank account.

How would this work for me?

Any help much appreciated

Many thanks in advance

 

[sopodo]

Has anyone got an answer to this, I still haven't found an answer from google searches. I must be searching the wrong term.

 

[scose-no-doubt]

You'll always pay UK tax as you are a UK resident.
If I had to guess I'd say your income would simply be treated as income from overseas (depending on the legalities surrounding your broker) and so your tax treatment would fall under the jurisdiction of the US/UK double taxation agreement which I'm not very familiar with tbh. It's all very specialised stuff but in a nutshell you'll have to pay US tax at source and then full in a sh1t load of forms and pay the difference to the UK who then reclaim the rest from the US.
You really need to speak to a specialist.

If you're doing really large size and making very good money it may be worth going offshore. There are companies that specialise in this stuff and they will charge you a few k a year administration but you should avoid most taxes. However, you need to be very careful which company you use as the laws are changing rapidly and a lot of companies will take you for a ride for the fees. A lot of the schemes they used to use are now null and void so and you could be left standing with a whopping tax bill in your hand after being relived of several thousand pounds for fees.
Do some searching and speak to a few people who've been where you are as I personally would not feel comfortable suggesting any companies to you in case it all goes t1ts up.

Maybe it would be worth speaking to a tax partner at one of the big 4's in the city if you can spare a few hundred quid for the hour- if s/he'll see you. They will probably be able to help you out or at least point you in the right direction.

Good luck

 

[songcon]

Has anyone got an answer to this, I still haven't found an answer from google searches. I must be searching the wrong term.

Please provide the type of futures that you are trading on. Is it stock
options, or commodity futures, or debt contracts . . .

You might try to approach this software vendor to get some general
information and I'll explain to you more in detail.
http://www.armencomp.com/

In general, you have to report the stock option gains/ (losses) on schedule
D - Capital gain or loss, if you do commodities trading, the brokerage
house will have a statement at year end to tell you the the gaines and Losses
on the transactions that you have closed. For the open items, they will
show them as unrealized gain/ (losses). It's more or less of a statement to
see how your account changed from the beginning to the end of the year.

If you close out a position, you've completed a taxing event. Your wealth has
increased or decreased do to the trade, If the transaction is for stock or
stock trading, the broker will send you form 1099 to tell you how many transactions
have been closed during the year, one copy is forwarded to the IRS. They also
send you a copy of all of your purchases during the year, and you have to match
the cost to file your Schedule D for capital gain.

For commodities trading, the broker reports the gain and loss for you.

When you open a brokerage account, ask if the firm has the gainkeeper
software keeps track the gain or loss for the clients. This will save you
a lot of time and cost at the tax time.

You will get tax credit for the taxes that you pay to the US up to the
level that you would have to pay to the UK. Let say if you make $30,000
and you paid $4,500 for income taxes to the IRS, with this $30,000 you
would have to pay $6,000 in the UK. Your UK tax form will show the
tax on capital gain of $6,000 but you'll get a credit of $4,5000 for the
money that you've paid to the US, and you only have to pay $1,500
after credit.

If the UK only taxes $3,000 on the $30,000 gain, that will be all you
can get credit on your UK return. This is very likely since the UK has
the first $8,500 tax free on capital gain ( or $13,500). You can talk to the
UK tax authority on this scenario, my guess is that the tax that you pay
on the $8,500 capital gain in the US can't get credited from the UK side.

Hope this helps,

SC

 

[sopodo]

Please provide the type of futures that you are trading on. Is it stock
options, or commodity futures, or debt contracts . . .

You might try to approach this software vendor to get some general
information and I'll explain to you more in detail.
http://www.armencomp.com/

In general, you have to report the stock option gains/ (losses) on schedule
D - Capital gain or loss, if you do commodities trading, the brokerage
house will have a statement at year end to tell you the the gaines and Losses
on the transactions that you have closed. For the open items, they will
show them as unrealized gain/ (losses). It's more or less of a statement to
see how your account changed from the beginning to the end of the year.

If you close out a position, you've completed a taxing event. Your wealth has
increased or decreased do to the trade, If the transaction is for stock or
stock trading, the broker will send you form 1099 to tell you how many transactions
have been closed during the year, one copy is forwarded to the IRS. They also
send you a copy of all of your purchases during the year, and you have to match
the cost to file your Schedule D for capital gain.

For commodities trading, the broker reports the gain and loss for you.

When you open a brokerage account, ask if the firm has the gainkeeper
software keeps track the gain or loss for the clients. This will save you
a lot of time and cost at the tax time.

You will get tax credit for the taxes that you pay to the US up to the
level that you would have to pay to the UK. Let say if you make $30,000
and you paid $4,500 for income taxes to the IRS, with this $30,000 you
would have to pay $6,000 in the UK. Your UK tax form will show the
tax on capital gain of $6,000 but you'll get a credit of $4,5000 for the
money that you've paid to the US, and you only have to pay $1,500
after credit.

If the UK only taxes $3,000 on the $30,000 gain, that will be all you
can get credit on your UK return. This is very likely since the UK has
the first $8,500 tax free on capital gain ( or $13,500). You can talk to the
UK tax authority on this scenario, my guess is that the tax that you pay
on the $8,500 capital gain in the US can't get credited from the UK side.

Hope this helps,

SC

Wow, that's a lot of very useful information right there, when it comes closer to the time I will be sure to get some tax adviser on board. Many thanks for the help.