Canuck57 wrote:

On 09/03/2012 11:36 AM, Paul Hovnanian P.E. wrote:
Simple solution: End users can write off the cost of raw materials
against their income for tax purposes.

Speculators are trading in contracts. Contracts are private negotiations
between two parties, Why then should the IRS allow the cost of said
contract (commodities futures, for example) be written off against the
eventual capital gain realized by its sale? With physical goods, it can
be demonstrated that the inputs were necessary to generate the outputs
sold.

I mean, for all I know, the initial payment was for hookers and blow. The
latter sale is 100% profit. The two transactions have nothing to do with
each other and the second should be taxed as pure profit.

Now, if you still want to trade commodities, go for it.

You are clueless, you pay taxes on only the net gains after expenses.

Allowable expenses. Its all subject to legislation and IRS regulations.

Futures markets are necessary, no one is a forced participant. It is a
way for a producer to lock in a profit for their product before they
invest in seed, machinery or whatever. If a commodity has a contract at
say $12 a unit, the producer might have a $9 cost to produce the unit,
if providing a $12 futures contract the $3 profit.

This way if the price drops to $8/unit, the producer can still make a
profit on the commodity option strike price of $12. Essentially
guaranteeing a producer a price. But if the price goes up to $15 then
the producer gets $12 and the contract purchaser makes $3 on each.

Has a place to stabilize prices and reduce risk for producers.

Fine. But the only people who can deduct the price of a future from their
eventual profit should be the ones who consume crude oil as a raw material.

Utilities (power companies) do stuff like this all the time. They'll sign
fixed price contracts for future deliveries, often for terms of 20 or more
years. Then someone takes those contracts and uses them as collateral for a
loan to build new generation. Commoditization of these contracts was rare
until Enron popped up and stuck its nose into the California power market.

--
Paul Hovnanian
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