In the USA, you have to pay taxes on capital gains from selling your assets, including stocks, Forex, and other securities. These taxes are determined by the IRS (Internal Revenue Service). For investors and traders, it is crucial to understand taxes on trading to avoid an underpayment penalty.
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A bonus piece of advice: We all try to reduce our taxes. That’s okay. Just ensure you use only legal ways to reduce your taxes to stay safe.
Now, let us walk you through potential tax implications, including IRS codes for trading, tax rates for traders, tax benefits and exemptions, and more.
Taxes on Stocks
Profits earned on selling stocks are capital gains, so they are subject to capital gain taxes. Generally, you pay either 0%, 15%, or 20% of the profit if you held the shares for over a year. An ordinary tax rate may apply if you hold the shares for a year or less. Dividends from a stock are also taxable.
Taxes on stocks are incurred in the tax year the stock is sold, or the dividend payment is made. You pay those taxes when filing your annual income tax return the following year. The best US Forex broker always provides Form 1099-B by mid-February; this document is used to tally up total taxes on profits and losses.
However, you may need to pay stock taxes sooner if:
- You don’t have enough tax withheld on your W-4 to cover stock taxes.
- Your income isn’t subject to income tax withholding.
Note: You don’t pay taxes on unsold stocks, even if the value of stocks goes up.
Taxes on Forex Trading in the USA
The tax treatment for Forex trading is different from other types of investments.
IRC 1256: Regulated Futures and Options Markets
As per the IRS, forex futures and options contracts are IRC Section 1256 contracts, which are subject to a 60/40 tax consideration. This means the first 60% of gains or losses are long-term capital gains or losses. The remaining 40% are short-term capital gains or losses.
This table shows taxes on forex futures and options contracts:
| % of Gains or Losses | Treatment | Tax Rate |
| first 60% | long-term capital gains or losses | 20% |
| Remaining 40% | short-term capital gains or losses | 37% |
IRC 988: Spot Forex
Most retail trading is Spot Forex, which refers to the sale or purchase of a foreign currency, a financial instrument, or a commodity for immediate delivery in the market on a specified spot date. These transactions take place over an exchange or over-the-counter.
Tax rules for Spot Forex:
Assuming that you haven’t decided to be a “trader in securities for tax purposes,”:
- Subject to ordinary federal income tax brackets.
- Covered by Internal Revenue Code (IRC) 988. In IRC 988, you can write off unlimited losses against your income. Capital losses may bear a limit of $3,000 annually under certain situations.
Tax Rates for Forex Trading Income (Capital Gains) in the US [2024]
As mentioned above, short-term capital gains are taxed as ordinary income. So, the following table shows rates and brackets for long-term capital gains sold in 2024:
| Tax rate | Single | Married filing jointly | Married filing separately | Head of household |
| 0% | $0 to $47,025 | $0 to $94,050 | $0 to $47,025 | $0 to $63,000 |
| 15% | $47,026 to $518,900 | $94,051 to $583,750 | $47,026 to $291,850 | $63,001 to $551,350 |
| 20% | $518,901 or more | $583,751 or more | $291,851 or more | $551,351 or more |
Tax Rates for Forex Trading Income (Capital Gains) in the US [2025]
Long-term capital gains sold in 2025 are subject to the following rates and brackets (reported on taxes filed in 2026):
| Tax rate | Single | Married filing jointly | Married filing separately | Head of household |
| 0% | $0 to $48,350 | $0 to $96,700 | $0 to $48,350 | $0 to $64,750 |
| 15% | $48,351 to $533,400 | $96,701 to $600,050 | $48,350 to $300,000 | $64,751 to $566,700 |
| 20% | $533,401 or more | $600,051 or more | $300,001 or more | $566,701 or more |
Other Important Tax Implications for Traders in the USA
- Day traders are subject to capital gains taxes. They typically are not subject to long-term capital gains tax rates.
- Traders must report all capital losses and gains on Schedule D (Form 1040).
- Form 8949 reports the sale of stocks, bonds, and other capital assets.
- Remember the wash-sale rule. It prohibits taxpayers from claiming tax benefits by selling securities at a loss and replacing them with the same or similar securities 30 days before or after the sale.
Stay informed, avoid penalties, and trade for profitability.
