How much capital gains do you owe this year? Robinhood traders are starting to receive their tax forms for 2020, and they are surprised to see they owe taxes due to our March to November bull run. Plus, there's a new IRS form for crypto. Let's get it into it.
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Tax Forms for Stock Traders
This year, you may receive more than one IRS Form 1099 from Robinhood. Here's how to know which forms you'll receive:
Robinhood Securities IRS Form 1099: If you had a taxable event at Robinhood Securities (for example, if you sold stocks or options) in 2020, you'll receive a PDF of your 1099 from Robinhood Securities.
Robinhood Crypto IRS Form 1099: If you sold any cryptocurrencies in 2020, you'll receive a separate PDF of your 1099, as well as a CSV file of your crypto activity to assist with uploading your tax information to services like TurboTax.
Generally, any profit you make when you sell a stock is taxable at 0%, 15% or 20% and will fall into two categories. Did you hold the shares more or less than a year? Here's a simplified guide to how to lower your taxes as a stock trader.
Capital Gains for Stock Traders
If you bought shares and sold them within a year, you may owe short-term capital gains tax. That's the tax on profits from the sale of an asset held for less than a year. Short-term gains are taxed the same as your tax bracket found here.
If you bought shares and sold them after a year, you may owe long-term capital gains tax. Your long-terms capital gains tax rate is:
Single Filers Long-Term Capital Gains Tax Rates
| Long-term capital gains tax rate | Your income |
|---|---|
| 0% | $0 to $40,000 |
| 15% | $40,001 to $441,450 |
| 20% | $441,451 or more |
Married, Filing Jointly Long-Term Capital Gains Tax Rate
| Long-term capital gains tax rate | Your income |
|---|---|
| 0% | $0 to $80,000 |
| 15% | $80,001 to $496,600 |
| 20% | $496,601 or more |
Ways to Decrease Capital Gains Tax
- Make sure you subtract your losses for the year. Remember, it's purchase price minus sale price = profit or loss. If you have more than $3,000 in losses, then you can use the $3,000 to offset any income for the year. Then, you can carry over the loss up to $3,000 every year until it's zero.
- Watch your holding times. For example, if you see that you're coming up on the year, check to see if holding the stock makes more sense or selling it makes more sense. Some traders will sell their losses to decrease their tax.
- Then, make sure you've setup your IRA's, your HSA's and your college savings accounts listed here. Also, did you know you can trade your IRA's without paying any capital gains tax.
Ways to Make More Money in 2021
We would be letting you down if we didn't include a “how to make more money” so you can invest more and have these capital gain problems. Here are ways you can make more money, including setting up passive income streams.
- Create a Print On Demand Clothing Brand
- Buy and Rent Vacation Homes
- Get Paid to Shop at Target
- Become a Contact Tracer for COVID-19
- Become a Virtual Assistant and Work from Home
- Take My Course on How to Setup Affiliate Marketing Websites
Bottom Line
Becoming aware of all your tax savings, tax deductions and plan your navigations throughout the year. Make sure you're aware that if you sell a stock a day early, this could trigger your short-term capital gains. Then, check your losses. The $3,000 carryover rule could save you money for years to come.
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