How can futures settlement affect my taxes?

Futures are a different animal. Futures and options on futures are mark-to-market each day based on the settlement price, or in other words, they are Section 1256 Contracts. Consequently, any open futures position (outright or options on futures) held from the last trading day of the year in December into the first trading day of the year in January will be marked at the settlement price of the last trading day. That means if you hold an outright future or option on futures position into the new year, then the gain or loss will be counted on the calendar year the futures position was open, despite not being closed.

Let’s do an example with an /ES contract:

  • Dec. 31, 2020: Buy to open 1 /ES contract @ 3500
  • End of day: /ES marks-to-market at 3505
  • Since /ES marked 5 points above your basis (3505-3500), you will be assessed $250 ($50/point x 5 points = $250) in gains for 2020 due to mark-to-market, despite anticipating to close in 2021.

This may not be an issue throughout the year, but you may need to keep an eye on any open futures positions held at the end of the year. 

To learn more about Section 1256 Contracts, please click here.