Some visitors of this website asked me the other day: How are Binary Options Taxed? The taxes on the profits you make from binary options will depend on where you are living. There are a few countries where traders are not required to file for the income tax. Many new binary options traders wonder if they have to declare the earnings they made from their trading activities.
The brokers are not responsible for maintaining a record of your profits and losses according to the law. I am not an accountant or lawyer and I cannot guarantee that the information on this page is accurate. Binary options have been classified as capital gains in a number of countries including Australia, USA and Canada.
Aside from capital gains, there are also other forms of taxes including income tax and tax for gaming. Binary options brokers are not casinos so they are not required to issue the tax form. You can declare it as extra earnings if you are just earning a small amount. If you earn a big amount from binary options, you have to declare it as capital gains.
All income derived from binary options trading are taxable no matter if you file it as a business or self employment income. It is classified into a taxable income even if you receive it as a gift from a relative. The profits you earn from options trading is taxed similarly as capital gains in stock trading and you should report it in the tax year. For example, if you place a trade in November and it expire in-the-money on January, you must declare it in your income tax in the new year.
However, you must be able to demonstrate how your purchase is only used for the trading activities so that it will be approved by the revenue agency.
Examples of expenses you can claim for tax deductions are trading material, and PC. If you are a trader in Europe, it will depend on whether your country treat it as a capital gain or gambling. EU traders should check with the local authorities to determine whether they are supposed to pay taxes on their binary options. Despite that, it is possible that the European Union will soon make a change on this and starts to require traders to declare their binary options profits in their income tax.
This is why it is important that you always keep a record of every single transaction on the trading platform. You must record every deposit and withdrawal you make no matter if it is in-the-money or out-of-money. Recording down all your transactions will make it easier for you to manage the tax preparation at the due date when you are supposed to file for your income tax. When the time comes for you to file the income tax, you just need to refer to the excel sheet you have created.
There are some brokers that allow traders to generate a report of the historical transactions you made on the trading platform. You can generate this report from the trading platform for tax purposes at anytime.
It is best that you hire a tax accountant if this is the first year you are trading in binary options. This varies from country to country. In theory yes, you should. The truth is that these companies are usually in offshore countries and there is little chance that they will report anything to other countries.
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