Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Taxes On Binary Option Trading Profits

|Includes:DNDN, FB, FCX, FSLR, SINA, Tesla Motors (TSLA), TWTR

As we approach the fourth quarter of 2013, organized traders start planning for their year end tax planning. The year 2013 saw a fundamental change in regards to the tax treatment of binary option profits.

In 2012, before the Cyprus Securities and Exchange Commission started regulating binary option brokers, profits from binary option trading were taxed as gambling profits.

Now that CySEC in Cyprus regulates binary option brokers, and by virtue of Cyprus being a member of the European Union, authorized binary option brokers will fall under the category of investment firms under MiFID, this could make binary option profits taxable as investment income or capital gains.

Very little information is currently available regarding the tax on binary options due to the fact that a tax year has not yet been completed with binary options being regulated instruments. Will the various MiFID regulated binary option brokers start issuing capital gains statements to their traders for tax filing purposes? A recent check of HM Revenue & Customs shows no results in their FAQ section regarding binary options. The HMRC in the UK has a two tier capital gains tax of 18% & 28% on capital gains after exceptions. View more on HMRC capital gains.

There are three types of taxes a binary option trader needs to consider. Gambling Tax, Capital Gains Tax and Income Tax.

In the United States, the IRS discusses gambling tax at length and has specific examples for tax on gambling winnings which get reported by the casino on a form W-2G, see here. Binary option brokers will not be issuing Form W-2G to traders because binary option brokers do not consider themselves casinos.

Continue Reading: Taxes On Binary Option Trading Profits

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.