The question is, are your binary options profits taxable? And how should you go about declaring them if they are taxable? Nevertheless, the key question to start with is under what classification does binary options profits and losses fall under? In the current largely unregulated trading environment, it is entirely possible for one country to classify binary options as a financial instrument and another country to treat profits from trading binary options as gambling proceeds.
Since the majority of the binary options traders are coming from Europe or the U. S, it make sense for us to focus on these two major markets regarding the issue of taxation on binary options profits. For UK traders, binary options trading is still regarded as a gambling activity and hence no tax is payable on any winnings. For the rest European Union EU due to the regulations imposed by the CySEC and the passporting of CIF licenses into member countries, binary options are classified as financial instruments and the brokers as financial services providers.
The legal implication of this is that profits gained from binary options trading are deemed as capital gains and are taxed as such. Alternatively, the profits gained from binary options trading if not taxed as capital gains will be taxed as general income because binary options brokers are not seen as casinos.
S, the issue is more complicated than in Europe due to the fact that binary options brokers and binary options are not recognized by the Commodity Futures Trading Commission CFTC as financial services providers or financial instruments. It should be noted that this view taken by the CFTC is because most offshore binary options brokers are not registered at recognized options exchanges or as casinos in the U. S financial regulatory bodies as a registered options exchange.
In this case, any profit obtained through binary options traded on NADEX will be regarded as short term gains.
As for profits earned trading with offshore brokers, it is likely that the IRS will regard the profits as winnings earned from gambling. This itself is also complex as there are different level of taxes for different types of games. Regardless, the best person to advise you on this matter will be your accountant or tax consultant.
As far as the IRS is concerned, all income earned are taxable and at the end of the day, they just want a piece of it. Most people take binary options trading as a past time activity and any profits earned from trading is not their main source of income. However, you are thinking of taking up binary options trading as a full time activity, you should declare your profits to the taxman.
Whether it is classified as general income or winnings is irrelevant as long as you pay what is due to the government. BinaryOptionStrategy does not accept any liability for loss or damage as a result of reliance on the information contained within this website; this includes educational material, price quotes, signals data, trade ideas, and analysis.
Please be aware of the risks associated with trading the financial markets; never invest more money than you can risk losing. The risks involved in trading binary options are high and may not be suitable for all investors Binary Option Strategy doesn't retain responsibility for any trading losses you might face as a result of using the data hosted on this site.
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