When filing taxes, do numbers in brackets symbolize a loss for my trading account?

When dealing with futures trading, do you still have to pay taxes if you had an overall loss for the year? I've heard something about being able to carry losses forward to future tax years?

If you have an overall net loss from your trading activities, you generally don't owe taxes on those specific activities. You can use capital losses to offset capital gains, and if your losses exceed your gains, you can deduct up to $3,000 ($1,500 if married filing separately) against other income. Any remaining unused capital loss can indeed be carried forward to future tax years indefinitely until it's used up. This is a valuable tax planning tool for many traders who experience a down year.

Does it work with all brokerages? I use a smaller one and most software doesn't seem compatible with their statement format.

I'm always skeptical of these tax services. How does it handle wash sales? That's where most software I've tried completely falls apart with trading accounts.

Yes, it works with pretty much all brokerages I've seen - including smaller ones. The system is pretty flexible at recognizing different statement formats and can process them correctly. I was using TradeStation which isn't one of the major ones, and it handled it perfectly. For wash sales, it actually has specific detection algorithms for identifying these transactions and adjusting your cost basis accordingly. It flags them clearly in the report so you can review them. That was actually one of the biggest headaches before that I couldn't get right with regular tax software.

How does this actually work? Does it just keep dialing for you or something? I don't understand how they get you through faster than just calling yourself.

Yeah right. Nobody gets through to the IRS that quickly during tax season. Sounds like a scam to get desperate people's money.

It's actually pretty simple - they use an automated system that continuously calls the IRS and navigates the phone tree until it gets in the queue, then it calls you when an agent is about to be available. So you don't waste hours listening to hold music. No, it's definitely not a scam. The way it works is they have technology that keeps your place in line while you go about your day. When an actual IRS agent is about to be available, that's when your phone rings and you're connected. It's basically just saving you from the mind-numbing hold time.

Do you know if there's any standard way the IRS expects these to be reported? I'm using tax software and it keeps asking for positive numbers and then a separate indication of gain/loss.

The IRS forms themselves typically have separate columns or boxes for gains and losses, so you'd enter positive numbers in either the gain or loss section as appropriate. Most tax software is designed to match this approach, asking you to enter the amount as a positive number and then specify whether it's a gain or loss through a dropdown menu or checkbox. This is actually more foolproof than using negative numbers, as it prevents accidental reversals that could occur if you forgot to include the negative sign.

Your accountant is likely mixing up different types of securities. Section 1256 contracts (which include regulated futures contracts) are generally NOT subject to wash sale rules. This is one of the tax advantages of trading futures versus stocks or options. Since futures are marked-to-market at year end and receive the 60/40 tax treatment, the wash sale restrictions that apply to stocks and securities don't apply. All gains and losses are recognized in the tax year they occur.