March signals the end of winter, the start of spring training in baseball, and (unfortunately) tax season. While most of us dread spending time and money filing taxes, people who trade futures may be a little less grumpy than everybody else, thanks to the beneficial treatment of futures contracts under the tax code (where they are creatively called Section 1256 Contracts – which we’ve talked about here). Just to provide some extra color on what the 1256 contract is, and what it could mean when you file, our friends over at RSM (the artist formerly known as McGladrey, I guess they looked at RCM and liked the whole acronym name thing) have some words of wisdom regarding how you can carry losses on futures trading back onto past tax filings. Enjoy.
Various commodity prices have fallen sharply during the past year. Many investors, traders and investment managers have realized taxable losses as a result. Some of these losses may be in the form of section 1256 contracts. Generally, a section 1256 contract is any regulated futures contract, foreign currency contract, non-equity option, dealer equity option or dealer securities futures contract.
Taxpayers with net losses from such contracts should be aware of certain planning opportunities and elections. Many taxpayers are familiar with the general capital loss rules for individuals who do not allow carrybacks. Unused losses may only be carried forward. Lesser known is the section 1256 carryback election. This election enables, in certain circumstances, an eligible taxpayer to carryback current-year section 1256 losses to reduce section 1256 gains in an earlier year. The tax code, not being known for its simplicity, contains several complicating factors to making the section 1256 carryback election. Possible late elections, mixed straddle and the capital gains tax rate are but three examples of potential complications.
Essentially, carrying back section 1256 losses can provide some cash now by offering a refund of previously paid tax. But there is also potential for a smaller overall benefit than carrying forward the losses would yield if tax rates are higher in later years. The rules for making section 1256 carryback are complicated. Taxpayers interested in making such an election should consult a competent tax advisor.
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The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.
Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.
Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.
Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.
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