04 December, 2013: There is the potential of receiving high returns on investments when trading in binary options. And like with all investments, there can also be taxes on your earnings. However, taxing binaries is not as simple as other trading situations.
“The tax laws of each country, state and locality are different in regards to online trading,” report trading specialists. “Every taxing authority has its own definition of earnings, and there are no cut and dried answers. Every trader will need to learn the tax laws in their locality to determine how much of their binary options earnings are taxable.”
Brokers are not required to send earnings statements to investors. Therefore if your chosen brokerage house does not send out statements, it is left up to you to keep a log of how much money you have made and lost. Profit and loss tracking sheets are recommended regardless of tax laws. Factor in all fees paid and subtract them from the total earnings. Keep your log current; this is also a great way to know whether or not your trading has been profitable.
Binary options trade earnings are usually taxable once they hit a certain earning level. These levels differ according to US federal and state taxing laws. In the UK, binary profits can be classified as more than one form of income. The best advice is to consult a tax adviser to determine the best tax rates. Do ask questions of your tax advisor rather than making assumptions. Just like in regular taxing options, assuming you do not have tax liability can cost you dearly.
Most localities require that you file a tax return regardless of where you earned your money. Do note that expenses related to online binary trading activities are deductible. Losses can be reported on a separate sheet and considered as “gambling losses” in some states in the US. One very smart way to avoid high taxes is to incorporate a company and report your binary earnings through that company. You will need to keep meticulous profit and loss statements in case you are audited by the taxing authority.
Note that in India if you plan on using binary options trading as a part of your permanent income, you must incorporate as a company and report profits and losses as a corporation. If you continue to trade as an individual, you may get a warning issued by the Reverse Bank of India. The chances, however, of being fined as an individual trader are low.
In Canada, an options broker can offer services legally but brokers are not regulated. This causes confusion in the tax laws. To avoid high penalties on your earnings, it is suggested that you incorporate as a company and take advantage of lower tax laws as a corporation. This same principle also works in the United States where online trading is not highly regulated. Do be aware that as the taxing authorities become more aware of online binary options trading, the tax laws will definitely change. Keep up on tax laws by employing a good tax advisor or reading the information reports of your brokerage house.
To learn more about binary options trading, get a free consultation with The Binary Options Experts team at www.binaryoptionsexperts.com. To also learn how to earn from their affiliate program visit and bookmark: www.binaryoptionsexperts.com/affiliate where experts are on hand to help.
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