I am totally confused on how futures contracts are taxed. I have never...

Yes, the tax treatment for futures and options on futures are truly unique. The tax code is nothing like the way the IRS taxes equity transactions. Futures contracts and options on futures are classified as Section 1256 contracts. This means that they are subject to the 60/40 rule. 60 percent of the gain or loss will be taxed as a long term gain or loss. The remaining 40 percent will be taxed as a short term gain or loss. These rules apply for all closedcontract positions even if the contracts were established and offset in a very short period of time and in the same calendar year. Let's take a look at an example. assume a speculator goes long  2 December silver at $53 per oz. and 2 weeks later off sets the contracts at a price of $58 per oz. The investor made $5 per ounce. With each contract covering 5,000 ounces, the investor made a total of $50,000 Under the 60/40 rule $30,000 will be taxed as a long term capital gain and $20,000 will be taxed as a short term capital gain. This is not the only unique tax treatment of futures contracts. All open contract positions will be marked to the market and assumed to have been closed out for tax purposes every year on December 31st.  Let's assume an investor had an open futures position with a cost basis of $50,000 and positive open trade equity on the position of $20,000 on December 31st. The positive open trade equity would be taxed as follows:  $12,000 of the unrealized gain would be treated as a long term capital gain and $8,000 would be treated as a short term capital gain. Going into the new year the investor’s cost basis would be adjusted upward to reflect the mark to the market taxation applied to the position. For the new year the investor would have a cost basis of $70,000.