Don’t Forget About Taxes on Microinvestment Income
Ads for apps like Stash, Acorns, and Robinhood make it easy to get started with just a few dollars. But micro-investing newbies should be aware that using these apps to try and earn a few extra dollars can leave you with some extra paperwork during tax season.
Dealing with taxes on your likely modest microinvestment income is not a reason to ditch investment applications altogether. But it does help to find out what you may end up owing before you withdraw your investment income and plan to spend.
When it comes to taxes, microinvestment accounts are considered regular size investment accounts. After the end of the tax year, you can expect to receive the following tax forms:
1099-MISCELLANEOUS
If you earn any cash bonuses or other referral rewards from your micro investing app and those bonuses are $ 600 or more, you can count on 1099-MISC. This money will be taxed as income.
1099-B
You will receive 1099-B from your microinvestment app if you sold any of your investments during that tax year. When you sell an investment, you pay taxes on the profits, called capital gains. If you sell an investment at a loss, you will also report these losses to the IRS, and these losses can reduce your taxable income. This tax rate can vary depending on how long you have held the investment.
1099-DIV
If your investment is so successful that some of the profits are distributed to investors, you will receive a 1099-DIV for the investment dividend you withdraw. The tax that you may owe depends on your income level and how long you held the investment.
1099-INT
If you earn more than $ 10 in interest through any financial institution, you will receive 1099-INT. This interest is taxed as income.
Whether or not you will be owed depends on your general tax profile.
If micro-investing is your thing, the tax implications are not a reason to stop. This is just a reminder to be prepared for the complication of your annual bottom line. Even if your investment is going well, any amount you owe could be canceled out by other factors that could lower your taxable income. You can also get into a higher tax bracket if you get a surprisingly good return on your microinvestment, but the casual user of these apps most likely won’t see such a dramatic impact.
If you are nervous about being unprepared for tax payments approaching, consider saving 30-50 percent of any funds you withdraw from your microinvestment account. Once you have filed your tax return and your fears about the tax account have been settled, you can use the remaining funds as you see fit.
While the IRS forms you receive are universal, each company launches their investment applications a little differently. Check out the company’s FAQs or contact customer service if you have questions about your account but don’t expect tax advice there. For advice on how to properly report investment income, ask your tax professional.