Tax tips every new trader should know

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As brokers without commission and stock trading apps—Like the popular Robinhood platform—keep growing, millions of new traders may not be ready for next year’s taxes.

When you are new to stock trading, you might not think about the impact of your account on your taxes. For example, Robinhood only offers a taxable brokerage account, which is different from your tax-deferred 401 (k). Here’s why: EEvery time you sell a stock it can have an immediate impact on your taxes.

If you’ve ever bought and sold stocks through a trading app (or multiple apps) while stuck at home this year, here are some important tax tips you should know.

Taxes on investment income

You can earn investment income when you sell a stock at a profit – or when you receive a dividend – and it’s taxed differently than your wages at work. The difference is that you may owe taxes to capital gains rate, depending on how long you own the stock.

When you own a stock for a year or more and sell it at a profit, you will have to pay long-term capital gains taxes, which are usually no more than 15%. It may be cheaper than your regular income taxes, depending on your tax bracket.

But if you’ve owned a stock for less than a year and sell it at a profit, which can be common for stock traders, you may owe capital gains taxes in the short term. These rates are the same as your regular income taxes, that is, “ordinary income” rates.

You may owe quarterly estimated taxes

Since our taxes are a pay-as-you-go system, you may also owe estimated quarterly taxes throughout the year when you make a profit by selling stocks. You can use this worksheet to calculate what you owe, or you can seek 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 your capital gains with other stocks that have lost money, called capital losses. These losses have the same time frames, or “holding periods”, as short and long term capital gains, but you must “realize” those gains or losses by selling those stocks before the end of the year.

You can learn more about the net capital gains or losses tax rules. here-but you should work with a tax professional if you are not sure.

You can deduct certain capital losses

If your capital losses exceed your capital gains, you can deduct up to $ 3,000 (or $ 1,500 if you are married and filing separately) from your capital losses from your regular income. You can see more details on how to deduct capital losses on Program.


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