He Never Sold His Silver Futures. The IRS Pretended He Did and Taxed More of His Social Security.

A man in his late sixties held silver futures in a taxable brokerage account without planning to sell. The Internal Revenue Service (IRS) imposed taxes on his Social Security benefits when the futures position was marked to market on December 31, even though he never closed the position. Section 1256 silver futures are treated as if they were sold at fair market value and then repurchased immediately on the last business day of the year, resulting in taxable gains that enter the investor's adjusted gross income.

If the investor's total income exceeds certain thresholds, up to 85% of their Social Security benefits can become taxable. Retirees should review their estimated futures gains prior to December 31 and ensure they have sufficient cash outside their account to cover the tax bill.