Reporting Options Trades on Tax Return
A common questions that arises once traders beginning winning many successful binary trades is “how do I report my winnings on my tax return?”. Of course there isn’t a one size fits all answer to that question. Taxes on options trading range from a simple declaration of earnings to something a bit more complicated. The local tax laws in your country of residence, how your country of residence views options, and how much money you’ve won or lost will all affect how your proceed in reporting your taxes.
What difference does make how my country regulates binary options?
Generally binary options are regulated in one of two ways. They are either regulated through a financial regulator as is the case in Cyprus, or they are regulated by a gaming authority as is the case in UK. This distinction is important to understand when filing your taxes.
For more information on regulation of different platforms check out our a regulation page.
The reason this is important is because most countries tax earnings from gambling or trading in different ways. For example the UK tax on capital gains is between 18%-28%. However, the tax on income from gaming revenue is much different.
Once you know how binary options are regulated in your country, you can figure out how to designate your winnings or your tax return. Some countries have different procedures and forms you need to fill our. Some countries allow you to report taxes on options trading with your general income.
Reporting options trades on your tax return can get complicated. If you are unsure how to proceed, it is always best to contact a tax professional for assistance.
Canadian Taxes on Options Trading
All residents of Canada are required by law to file a tax return regardless of how much you earned that year or where the income came from. Binary platforms do not withhold taxes on your behalf so it is your responsibility to manage your winnings and losses for the purpose of declaring them on your taxes at the end of the year. In Canada earnings from options trading can be taxed as capital gains. The important thing is to maintain an organized record of your winnings and losses so you know how much loss you can deduct from your winnings.
In order to be confident that you are properly declaring your taxes, it is strongly recommend that you review the Canadian Revenue Agency (CRA) website along with the tax authority in your local province. If you have any doubt, be sure to contact a tax professional for assistance.
Australian Taxes on Options Trading
If you are a trader residing in Australia, you will most likely be able to file your winnings under capital gains and earnings. Australia does not classify binary options under a gaming tax. However, how exactly your declare your earnings depends on how much you’ve earned trading throughout the year. If you’ve earned a smaller amount, you can file it under extra earnings. For larger amounts you might need to list them under capital gains.
Your specific tax liability will depend on how much you traded throughout the year. The upper limit of earnings you are allowed to declare as extra earnings will change from state to state. It is best practice to check both federal and state level tax requirements before you begin trading. This you will know the various relevant levels of earning as well as how the country views losses (i.e. are they deductible or not).
For more specific information on the federal level review the Australian Taxation Office. The ATO site provides relevant information as well as links to the various local tax authorities. Be sure to contact a tax professional in Australia if you are unsure of how to file trading taxes.
UK Taxes on Options Trading
UK tax code is unclear when it comes to binary options trading. In general, binary options are considered gaming, although that is liable to change in the near future. As such taxes on winnings from binary options would fall under the tax code that incorporates gaming. However, depending on your winnings you may not have to pay anything. It is recommend that you consult with Her Majesties Revenue and Commissions before you begin trading binary options in the UK.
US Taxes on Options Trading
If you are planning on trading binary options in the US, filing your taxes can get very murky very quickly consider the confusion surrounding regulation of the financial instrument as well as the necessity to file income taxes at both the federal and state level. It is best practice to consult with the relevant regulatory bodies to determine if options are considered capital gains or gaming earnings.
If you are able to report binary options as capital gains then your tax rate on this income will be between 0%-28% depending on your normal rate of income. The more normal income you bring in per year, the more taxes you will pay on capital gains (capital gains can also be broken into long term and short term which has a bearing on the amount of taxes you pay). If you are required to report earnings from binary options as gaming then you need to include it in your general income which is taxed at the same rate as your salary.
The downside of having to report trading as gaming is that you can’t report losses as deductions below zero. What this means is that if you win $100 dollars but lost $50 all you need to do is claim your total winnings as $50. But, if you win $100 but lose $150, you cannot deduct $50 from your total income from that year.