Tax Advantages
Federal regulations stipulate that profits and losses derived from futures transactions are not considered entirely either long term or short term with respect to their capital gains status. Instead, they are considered as a hybrid mixture of the two.
60% of the profit is taxed at the long-term capital gains rate.
40% of the profit is taxed at the short-term capital gains rate.
Consider the following example of two investors trading the S&P 500. One uses the SPDR Exchange Traded Fund and the other uses the E-mini SP 500 Futures.
- Both investors made $100,000 in gross profit.
- Assume both traders are in the marginal income tax bracket of 35%
|
ETF SPDR Trader |
E-mini SP Trader |
| Gross Profit |
$100,000 |
$100,000 |
| Tax Rate |
100% of profits taxed at 35% |
60% of profits taxed at Long Term Capital Gains rate (15%) 40% of profits taxed at Marginal rate (35%) |
| Taxes Paid |
$100,000 x 35% = $35,000 |
$60,000 x 15% = $9,000
$40,000 x 35% = $14,000 |
| Net Profit |
$65,000 |
$77,000 |