Binary Options Taxation

An analysis of any business area is inextricably linked to taxation. And if for Americans, French or British the need to transfer to the country’s budget a certain part of the profit received is not in doubt, then for many of our compatriots it is not so simple. At the same time, some traders are interested in the question of how binary options and taxes ( are interconnected from the position of law-abiding citizens (they are ready to make all necessary payments to the budget). But there is another category of online trading participants who are interested in all possible ways of not paying taxes without breaking the law.

1.   The main problems of taxation of operations with BO

In the summer of 2018, the European Financial Markets and Securities Authority (ESMA) banned all binary options transactions in the EU. Thus, the issue of taxation of operations with binary was decided automatically. As for countries where the financial market instrument in question had a legal status, in most cases, it remains open for a long time. The main reason for this situation is the lack of legislation governing all aspects of the trade in BO. Some lawyers were considering brokers to solve the problem, but the idea was completely unsustainable. Why?

  • First of all, no broker will voluntarily deal with the taxation of their clients.
  • Among participants in the global financial market, there is a fairly high percentage of brokerage companies that are registered in offshore zones where they do not pay taxes at all.
  • The proposed scheme for accruing tax liabilities provided that the object of taxation (profit of the trader) will be calculated for each successful transaction. And what about unprofitable operations?

For example, a trader loses money all week and his total loss reaches $ 1,000, and then earns $ 200, but according to general results he is in the red, should he pay taxes from $ 200?

According to some lawyers, in order to partially solve the problem under consideration, it is enough to give a precise definition of binary options at the legislative level. But not everyone agrees with this statement, there are no guarantees that the decision of the trader to use one of the existing methods for calculating the amount of tax obligations will be correct.

Binary Options & Taxes
Binary Options & Taxes

2.   Recommendations of specialists

Binary options and taxes are a question that even some tax officials do not know the answer to. On the one hand, the absence of laws that regulate the mechanism for calculating taxes on operations with BOs gives the full right to pay nothing to the budget. But on the other hand, the trader makes a profit, which he must declare and pay taxes. What are the potential options for solving this problem?

  1. The work of the trader with the BO is an economic activity that brings him income. This means that he must pay a certain percentage (depending on the country of residence) to the state budget. For this, it is necessary to prepare a statement of the bank account through which all financial transactions related to the sale of binary options. If during the year you replenished your trading account with 30 thousand dollars and withdrew 45 thousand, then your profit is 15 thousand dollars, they are subject to taxation.
  2. Another way, provides for the registration of a trader, as a business entity. In this case, you may have the opportunity to independently choose a taxation system, which allows you to reduce the amount of obligations, but this “coin” has a downside (not very attractive).

A future business entity must register with the tax office, having paid a certain fee, as well as obtain a certificate from a pension fund and open a bank account. It will take some time, but it should be noted that today most people can quickly and easily become a private entrepreneur, maybe more so than 10-15 years ago.

Before deciding to register FLP, think carefully about how rational this option for solving the problem will be for you. Of course, with the right choice of taxation system, tax liabilities can potentially be reduced, but you will have to pay money to a pension fund, pay for banking services, and also prepare reporting documents in a timely manner.

3.    What will happen if you do not pay taxes?

Do not take the following information as a call to action. It’s just that without it, the presented review will not be complete, but deciding on the possibility of practical application is a personal matter for each trader.

If you do not follow the rules, your financial operations could be of interest to representatives of regulatory authorities. Compliance with the above conditions allows many traders to earn a living (at the level of the average salary in the country), without attracting unnecessary attention to their small business.

As the old saying goes, “Nothing is certain except for death and taxes.”

Under no cicumstances should this be viewed as tax advice. You should seek advice only from a qualified tax professional.