If you have been in the forex industry for a long time, one of the most common questions you will hear from newbies is; Do you pay tax on forex trading US market. The answer is yes. Forex traders are required to pay tax on their profits. Forex trading is considered a business, so the profits from forex trading are taxable.
Normally, forex traders are subject to income tax in the country where they live, and that is the same case when you come to the United States. American citizens who trade using forex brokers outside the United States must also pay taxes on their profits earned in foreign currency. This is true even if the trader does not reside in the United States at all times and only trades online with a broker located overseas.
When a trader wins money in foreign currency, it is considered income when converted into US dollars but an expense when converted back into foreign currency. The exchange rate between currencies determines how much taxable income is earned when converting funds into US dollars or vice versa.
A forex trader can also be subject to capital gains tax when selling a position that has lost value over time through market volatility or other causes such as bankruptcy of the brokerage firm handling their account.