IRS Treats Silver Futures as Sold on December 31, Impacting Taxable Income

A retiree in his late sixties had bought silver futures in a taxable brokerage account and held the position across multiple tax years without closing it or withdrawing the money. He thought that since he hadn't sold, there would be no capital gain to report.

However, when January arrived with a Form 1099-B showing taxable profit on the still-open contract, he was surprised. The IRS treats certain futures contracts as though they were sold at fair market value and immediately repurchased at the same price every year on December 31. This means that even if an investor doesn't sell their position, they may still be taxed on any gains or losses.

The tax code considers this 'marked-to-market' gain a sale for tax purposes, and it can affect how much of their Social Security benefits are taxable. For a single filer, benefits begin entering the taxable column when combined income exceeds $25,000. The first threshold for married couples filing jointly is $32,000.

It's essential to note that investment gains do not count under the Social Security retirement earnings test, so even if an investor claimed before full retirement age (FRA), a profitable silver position would not cause the agency to withhold their monthly checks. However, capital gains enter adjusted gross income, which feeds the formula used to determine how much of their Social Security is taxable.