Tax Tips Every New Stock Trader Should Know
As commission-free brokerage services and stock trading apps – such as the popular Robinhood platform – continue to grow , millions of new exchange traders may not be tax-ready next year.
When you are new to stock trading, you may not think about how your account might affect your taxes. For example, Robinhood only offers a taxable brokerage account that is different from your 401 (k) tax-deferred account. Here’s why: every time you sell a stock, it can immediately impact your taxes. If you’ve already bought and sold stocks through a trading app or multiple apps while at home this year, here are some important tax tips.
Investment income taxes
You can earn investment income when you sell stocks for profit or when you receive dividends and they are taxed differently from your salary at work. The difference is that you may owe taxes at the capital gains rate depending on how long you own the stock. If you own shares for a year or more and sell them for a profit, you will have to pay long-term capital gains taxes, which usually do not exceed 15%. This may be cheaper than your regular income tax, depending on your tax category. But if you own the stock for less than one year and sell it at a profit – which might be normal for stock traders – you can make short-term capital gains. taxes. These rates are the same as your regular income taxes — the so-called “regular income” rates.
You may be in arrears for quarterly estimated taxes
Because our taxes are pay-as-you-go, you can also pay estimated taxes on a quarterly basis throughout the year, as you make a profit by selling shares. You can use this spreadsheet to calculate your debt or get advice from a tax professional.
You can offset tax gains with losses
As the end of the year approaches, it may be possible to offset some of the capital gains with other stocks that have lost money – known as capital losses. These losses have the same time frames or “holding periods” as short and long term capital gains, but you must “wake up” these gains or losses by selling these shares before the end of the year. the rules for taxing net gains or losses are here – but you should consult with a tax professional if you are feeling insecure.
You can deduct some capital losses
If your capital loss is greater than your capital gains, you can deduct up to $ 3,000 (or $ 1,500 if you are married separately) from your capital loss from your regular income. You can see more details on how to subtract capital losses inChart D.