Taxes Filing Taxes on Commodities How to file taxes when you trade commodities By Chuck Kowalski Updated on January 6, 2023 Reviewed by Ebony J. Howard Reviewed by Ebony J. Howard Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries. learn about our financial review board Fact checked by J.R. Duren In This Article View All In This Article Paying Taxes on Commodity Trading Examples of Filing Taxes on Commodities What About Trader Tax Status? Frequently Asked Questions (FAQs) Photo: Portra Images/DigitalVision / Getty Images Every year that you trade commodities, you will have to claim any profits you make on your income tax return and pay the applicable taxes. You'll need form 6781 to file taxes when you trade commodities. This form is called the Gains and Losses From Section 1256 Contracts and Straddles. Learn more about how taxes work with commodity trading below. Key Takeaways If you trade commodities and earn a profit, you'll need to file tax form 6781 with your annual tax return.You'll pay taxes on the capital gains you earn on the commodities you trade, and the amount you pay is split into two categories—long and short—regardless of how long you actually held onto the commodities.After form 6781, you'll also need to fill out Schedule D and attach it to your Form 1040 tax return.If you have a more complicated commodity trading situation, consult a tax professional. Paying Taxes on Commodity Trading If you trade commodities, you should receive a 1099-B Form from your broker before Jan. 31, following the end of the tax year. It will state your profits and losses from the previous year’s commodity trading. Subtract the losses from your profits, and that will give your capital gains. Your capital gains from commodities will be taxed in two ways: 60% of the capital gains are taxed at long-term rates40% of the capital gains are taxed at short-term rates Long-term capital gains tax rates are 0%, 15%, or 20%, depending on how much you make, Short-term capital gains tax rates are the same as your normal tax rate based on your income tax bracket. Note You do not have to worry about accounting for and listing each individual trade on your tax returns. You just need to know your capital gain or loss. Examples of Filing Taxes on Commodities Let's say that you hypothetically traded commodities in 2022, and estimate that you netted a $5,000 profit for the tax year. To make certain, you wait to receive your 1099-B form from your broker in January 2023. This is likely called form 1099-B Proceeds from Broker and Barter Exchange Transactions. It will list your investment profits and losses for the year. Once you have that form, you can fill out IRS Form 6781 to determine the tax you need to pay on your commodities trading. Note The IRS considers commodities and futures transactions as 1256 Contracts. On the form's line 1, enter your gains and losses from your 1099-B Form. You'll add these together on line 2 and then will combine columns b and c to get a total gain or loss on line 3. Let's say that after you do this, you see that you earned a gain of $5,000 from your commodities trading in 2022. Now, you have to calculate the capital gains tax. You'll need to figure out how much of your $5,000 is taxed at long-term rates and short-term rates. Do this by multiplying $5,000 by 60% and then $5,000 by 40%: $5,000 x 60% = $3,000 $5,000 x 40% = $2,000 This info goes on lines 8 and 9 on form 6781. Note Commodities are marked to market at the end of the year. This means that if you have open positions, they will be calculated as profits and losses as if they were closed positions using the price on the final day of the year. After you're done filling out form 6781, you'll plug these numbers into your Schedule D Capital Gains and Losses—there are two sections, one for short-term gains (or losses) and one for long-term gains (or losses). After you complete the Schedule D calculations, transfer the numbers to your tax return Form 1040 and you are done. Note There are a few more in-depth issues that pertain to filing taxes for commodity trading, but the above information for taxes on commodities should cover most people who do not strictly trade for a living. What About Trader Tax Status? There are some favorable issues for those who can claim trader tax status. To qualify for trader tax status, you must be a full-time trader whose work is considered a business. If you trade via a stock app a few hours a day, it's likely that the IRS will consider you an investor and not a trader. With a trader tax status, you can claim your losses and any business expenses as ordinary losses and they can be deducted directly from your income. Also, the losses are not subject to the maximum of $3,000 in capital losses. Note Gains and losses that traders experience through selling securities aren't subject to self-employment tax. Always keep in mind that tax policies can change on the federal and local levels. Therefore, it is always wise to consult a tax professional for help in preparing and filing returns to make sure that you are in full compliance with the law while taking advantage of all benefits allowed under the tax code. Frequently Asked Questions (FAQs) What is a commodity tax? A "commodity tax" is different from the taxes you will pay trading commodities. A commodity tax is a tax levied on a specific commodity, such as gas, to raise revenue for the government. When do futures traders pay taxes? Some traders may only have to pay taxes on their trading profits once per year. However, traders who anticipate earning significant amounts of profit may need to make quarterly estimated payments throughout the tax year. Individuals should make quarterly estimated tax payments if they would otherwise expect to owe at least $1,000 on their tax return. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. IRS. "Form 6781: Gains and Losses From Section 1256 Contracts and Straddles." IRS. "Topic No. 409: Capital Gains and Losses." Fidelity. "How To Cut Investment Taxes." IRS. "Topic No. 429 Traders in Securities (Information for Form 1040 or 1040-SR Filers." U.S. Customs and Border Protection. "Duty, Taxes and Other Fees Required To Import Goods Into the United States." IRS. "Estimated Taxes."