Fx Trading and Taxes

Taxes
1

Hi Guys,

Two quick questions for the IB experts here:

  • does currency exchange fee at IB counts as part of the monthly minimum fee ($10)?
  • what about transfer-out fee, after the first one free?

I need to finally sign-up for IB, and I was thinking of using the fee allowance for some non-mustachian FX trading on IB.

Does any of you have some experience with reporting FX gains/loses to the tax office when you buy USD with CHF at IB?

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2

I guess by FX trading you mean “many positions on currency pairs that I do not intend to keep open more than 6 months” => This would break one the criteria that tax office uses to decide if you are a “professional” or not. if they deem you professional, then all of your capital gains (including your mustachian investments in ETFs) will be considered as taxable income, and thus taxed at your marginal tax rate…

I don’t think it is worth the IB fee allowance… :wink:

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3

Good question, also interested in the answer - regardless of the intention. :slight_smile:

4

This is not a sure thing, it is entirely in the discretion of the tax office if they declare you a professional trader or not. Technically all mustachians could get taxed this way once they retire as capital gains will make up most of their income.

5

I see, you are right :worried:

This becomes a huge red flag for me then.

Purely theoretically:

  • if FX buy/sell under 6 months can cause all your capital gains being taxed at your marginal rate
  • than buying 200 EUR at Migros Exchange before going shopping to France, and then selling the remaining 50 EUR after coming back (or anytime before 6 months passes) might cause the Tax Office to classify one as a professional investor, and therefore tax all ETF gains at marginal rate.

This is a bit paranoid, but as a Pole, while dealing with the Tax Office I always assume the worst possible outcome very probable.

I can bet that most of us here could be qualified as professional investors in the event the Tax Office decides so.

“Show me the man, and I’ll show you the crime.”

If you are one of these people that never exchanged back the remaining foreign currency after coming back from holidays, maybe you:

  • tried buying BTC etc. and then changed your mind and sold it
  • sold an unwanted gift after Christmas
  • …

:frowning:

Is being qualified as a “professional investor” a lifetime “badge”, or per tax-year?
If one do not sell their ETFs in the accumulation phase (let’s assume there is no need to re-ballance by selling if one has VT only or 2 ETFs) - therefore how bad is being qualified as “professional investor”?

6

You can exchange as much currency as you could practically need. Just don’t go trading 100k FX lots and tell the taxman it’s for your upcoming holiday expenses.

7

Kanton Zug has a helpful clarification, might be interesting for those of you living there. They wont tax you on capital gains if:

  • your capital in “Wertschriften” is less than < 200k. This excludes liquid cash in your brokerage account
  • less than 100 transactions on margin or less than 200 without margin
  • less than 1x the value of all assets as revenue. 2x if you dont trade on margin
  • you hold > 50% of your assets more than 6 months

https://www.zg.ch/behoerden/finanzdirektion/steuerverwaltung/steuerbuch-zug/erlaeuterungen-zu-a7-17-selbstaendige-erwerbstaetigkeit/gerwerbsmaessiger-wertschriftenhandel/@@book_reader_view

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8

its mostly bad not due to the additional income they will tax you on (that fully depends on your tax bracket how bad it is) but due to the additional “AHV Pflicht” as a small investor.

Personally, since I am a very active trader, it would be better for me to open a GmbH. It makes me more flexible lowering my taxable income.

9

At least at the beginning after reaching FIRE, you should not withdraw more than 4% of your portfolio, 2% of it being withdrawn via dividend, which is taxable income, not treated as capital gains. But indeed, if there was a market crash, you could easily generate more capital gains than dividend income.

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10

this is just theory, its hard to predict the future of the tax office’s actions but since capital gains are easily 2x higher than dividends, you would fall into this category.

This is just pure speculation on my part but I dont think the tax office wants people to live off of their capital before the age of 60 and not have a share of that.

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11

Splitting topics to keep readability of the forum in order.

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12

Shortly back to the part of the original question:
Do Fx trades (i.e. when I change my CHF to USD to buy Vanguard ETFs) count towards IB’s fees towards the 10 USD?

13

Yes. Fees are fees. Anything you pay them is considered a fee.

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