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One of the biggest advantages of trading in the commodities, futures and forex market is the tax simplification.  Active traders – especially day traders – know that tax time can be painful with the requirement to log every trade with the IRS.  For those that practice channel trading and dollar cost averaging, it becomes even more complicated with the IRS wash sale rules.  Taxes on futures – which can include commodities, futures and the forex market – are much simpler.  From the book Getting Started in Commodities, by George Fontanills:

Futures on both individual commodity futures and index futures are subject to Section 1256 of the Internal Revenue Code.  Gains on Section 1256 contracts are taxed as if 60 percent of the profits are long-term gains and the other 40 percent of the gains are short-term.  This scheme creates a blended tax rate of 23 percent, regardless of holding period…

The downside to Section 1256 treatment is that all contracts are marked to market at the end of each year.  Taxes are due as if each contract was liquidated on December 31, so profits cannot be deferred.

Of course taking advantage of the special tax treatment first requires one to learn about how to trade commodities.  The best book to get started with this quest is Fontanill’s book below.  Just click on the book to buy it.

Getting Started in Commodities (Getting Started In…..) by George A. Fontanills