SECTION 1256 TAX TREATMENT
Plain English
US-listed futures get a major tax break: Section 1256. Profits are taxed 60% long-term and 40% short-term, regardless of how long you held. Stocks have no equivalent — futures are tax-advantaged for active traders.
Going deeper
Section 1256 contracts (futures, futures options, broad-based index options like SPX) get the 60/40 split: 60% of gains taxed at long-term rates (max 20%), 40% at short-term ordinary rates (max 37%). Blended max rate ~26.8% vs ~37% for stocks held <1 year. Mark-to-market accounting at year-end means open positions count toward annual P&L. Losses can be carried back 3 years against prior 1256 gains. Active futures traders save substantial taxes vs. equivalent equity trading. Consult a tax pro — state-level treatment varies and elections can change the math.
Examples
Tax savings example
$100k in futures profits → ~$26.8k federal tax. Same $100k from short-term stock gains → ~$37k. The futures tax break alone is worth $10k/year on six-figure profits.
Mark-to-market surprise
You hold a profitable open ES position into year-end. The IRS treats it as closed for tax purposes on Dec 31. You owe taxes on unrealized gains — plan cash for the bill.