How should near-instant forex transactions be handled for taxes?
How should near-instant forex transactions be handled for taxes?
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Paul Razvan Berg · External communityPost link
External question — Personal Finance Stack Exchange
Author: Paul Razvan Berg
Original post: https://money.stackexchange.com/questions/121039
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
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This is what I mean by a "near-instant" forex transaction. I deposit GBP in my broker account with the goal of buying a US-based company stock, but, when I make the trade, the broker automatically converts my GBP into USD, and then buys the stock for me.
Assuming that I sell this stock at some later time, should I report only two events, or four? That is, only the stock buy/ sell event, or the GBP/USD swaps plus the buy/ sell event?
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Ganesh Sittampalam · External communityPost link
External answer — Personal Finance Stack Exchange
Author: Ganesh Sittampalam
Original post: https://money.stackexchange.com/a/121040
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
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It doesn't matter. The relevant tax is Capital Gains Tax, and you'll end up with the same gain (or loss) in GBP no matter how you calculate it. You do need to keep records to show how you calculated the gain/loss, but you won't need to actually include them in your tax return.
The fundamental point is that you are starting with some GBP, use it to buy some USD, then use all the USD to buy stocks, and then later doing the same in reverse to get some GBP. No matter how you add it up, your eventual gain/loss is just the ending GBP minus the starting GDP. Anything more complicated you to do calculate the gain/loss should just cancel out.
If you ended up holding some USD for some time, and it crossed a tax year boundary, then you might need to separate out the calculation and gains to work out how
much is attributable to each tax year. But that seems quite unlikely in the scenario you describe.
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Quoted from Forex.com.bd-Editorial External answer — Personal Finance Stack Exchange Author: Ganesh Sittampalam Source score (net votes, not local likes): 4 Original post: https://money.stackexchange.com/a/121040 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. It doesn't matter. The relevant tax is Capital Gains Tax, and you'll end up with the same gain (or loss) in GBP no matter how you calculate it. You do need to keep records to show how you calculated the gain/loss, but you won't need to actually include them in your tax return. The fundamental point is that you are starting with some GBP, use it to buy some USD, then use all the USD to buy stocks, and then later doing the same in reverse to get some GBP. No matter how you add it up, your eventual gain/loss is just the ending GBP minus the starting GDP. Anything more complicated you to do calculate the gain/loss should just cancel out. If you ended up holding some USD for some time, and it crossed a tax year boundary, then you might need to separate out the calculation and gains to work out how much is attributable to each tax year. But that seems quite unlikely in the scenario you describe.
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