I know many young traders, including myself started with the GME frenzy back in January. Now that it’s almost a year later I am starting to have a few questions about taxes, and hopefully this can help others as well. Some of these can be pretty basic Qs
When is tax season?
Dose the end of the year ( December 31 mean anything/ mark something?)
When should I start sending and receiving tax documents? And where do we get them?
What should we do if we’re at a net loss/gain for the year?
Is there a cutoff date for all the trades to be in one group?
Cash or checks?
Thank for any feedback, hopefully it helps me and others who started in the past year. Google can give different answers sometimes.
Your brokerage will have a tax statement online usually around early February. The tax return deadline to file is April 15th, however, in the recent past it was extended due to COVID.
You should be able to fill in the screens on your tax website using the form your broker provides. Overall gains will be taxed if you have them.
You can deduct up to $3,000 in losses from your gains(reducing your taxable income on Schedule D or a Form 8949) for the tax year ending Dec 31. This comes with a caveat: watch out for the wash sale rule. If you’re a trader who say, trades TSLA 8-10x per day, the wash sale rule prohibits you from taking the tax benefit of that loss if you buy it back within 30 days. So good practice is to let your trades “settle” by not trading your usual frequent tickers either in the month of December or January. If they don’t “settle” you’ll pay more in tax for the calendar year 2021 and your deductible loss will be deferred for the following year. You can start back up and go full degen again in February.
All brokers are normally required to send you 1099 by Feb 15. Unless you have any Partnerships investments, you normally will have all the documents by the end of February W-2, 1099, and whatever else you have). Tax season normally starts end of January and the first deadline is April 15 (June 15 if you live abroad), second deadline is October 15 (but you need to file extension in April to request extra 6mo).
If you don’t know what you are doing, hire a tax pro or try to play with turbotax and pray for the best
