Taxing options.

I had a rough idea how options were taxed, but I posed the question to someone with more experience than I. The response I received was good and stated that he was NOT an accountant. How I understood it was that most of us can include options into our capital gains or losses.

Unless you are a very active trader, and very good, the chance of you paying anything other than capital gains taxes on your options profit is slim. However the government does leave room for interpretation. One thing to note is that if you don't derive the majority of your income from trading options it doesn't make sense for the government to waste time with you.

The government would not want to make bad options traders pay the full tax rate on their options trading because that could wind up lowering the total taxes paid. Not exactly in the governments best interests. I think the odds of the government allowing bad option traders to write off losses against regular income is about as likely as a decision to no longer tax income trusts in 3 years.

One thing the person I asked about taxing options did say is that 'Native' Canadians would do better putting options into regular income. Don't ask me, but it has to do with Native Canadians paying more capital gains tax than regular tax?

The feedback i received about tax on options was from a few people, with most of it coming from optionmatters.ca writer Richard Croft. If one ever has a question about options Mr. Croft seems to be an excellent source of knowledge, and doesn't mind sharing it!

I have written an article on options and published it on stockhouse.com. I figure that it should be posted here for background knowledge to learning about options. Look for it in the near future.

I will be looking at doing some option trading in the next week or two as October options will expire Friday Oct. 19.