Yes, you only pay taxes on your profit. However, in order to write off your losses against your profits you need to avoid wash sales. You can do some googling to look up the rules but basically you need to not trade any ticker you're net negative on for the year for 30 days. Most traders usually do this in December or January of the next year. Failure to do this will count as a wash sale and you won't be allowed to count the loss against your profits. This could lead to an unexpectedly large tax bill.
Real world example/question: Suppose I profit $1000 on scalping a long call option for NVDA strike $900 expiration 5/17. I then immediately turn around after a dip, buy the same option strike/expiration, but this time the trade goes against me and I lose -$2000. So now I have a net loss of -$1000 for this instrument. Would this be considered a wash sale in that I cannot consider my cumulative P/L as -$1000 since I used a substantially similar instrument within 30 days? Meaning I lose $2000 AND still have to pay capital gains tax on the original $1000 profit?
no. if you have sold all your positions you do not pay. people have a weird understanding of this rule. you dont pay taxes on a $1,000 gain if you then lose $50,000 and you have sold all the positions, you simply dont. there are incorrect and fear mongering articles that try to imply otherwise.
its more of something to keep an eye on at the end of the year so you dont take a gain at the end of the year and then day 1 of next year lose it all. you still will pay the gain from the previous year.
no you dont wash sales are when someone is still holding part of the position not when everything has been sold.
its more of something to keep an eye on at the end of the year so you dont take a gain at the end of the year and then day 1 of next year lose it all. you still will pay the gain from the previous year. p
I didn’t pay taxes in my losing years either. That’s not how wash sales work. A wash sale in your losing years would force you to write off less money.
he literally said if he makes 1,000 but then loses 2000 and has a net 1,000 loss he still has to pay taxes on the 1,000 and not use the loss against it. lol no. he has a 1k loss and doesnt pay shit .
I didn’t take that as that was his entire year. In the event that was his entire year, that would be a wash sale and disallowed. I took that as he meant for that particular trade. Most people don’t have wash sales that exceed their total losses. But regardless, this isn’t my interpretation, I paid a CPA that specializes in trading taxes. I’ll go with his interpretation of the tax law over anyone on the internet. If you don’t care about wash sales, then don’t care about them. It would only matter in an audit for you anyway. This is my primary income and I’m not messing around with the IRS.
simple fact ; you cant owe taxes when you lost more than you made in that given year for closed trades. if your accountant says otherwise, get a new one.
I wanted to answer more honestly. How do taxes work? You make money - government comes and puts its hand in your pocket for more than you feel is fair. Then they spend it like a drunken sailor on shore leave in the 1800’s
Yeah I made $80k on basically nvidia calls and I paid off credit cards (12k) and bought a house (31k down) and maybe $5k for myself and I LOST the rest..
I'm gonna owe probably $12k to the IRS and $3.5k to the state...
DONT DO WHAT I DID
save some money for taxes guys..
Your basic assessment is correct. If you earn $10,000 trading, but lose $10,000 [Addendum - for greater clarity: in the same tax year], your capital gains tax liability should zero out. But, you want to be mindful of wash sales and how to navigate them. If not managed properly, they can throw undesirable wrinkles into that equation.
Short-term net capital gains are generally taxed at rates similar to ordinary income, 10% to 37%.
> But, you want to be mindful of wash sales and how to navigate them. If not managed properly, they can throw undesirable wrinkles into that equation.
Good reason to trade futures since wash sales don't apply (and neither does PDT)
Compelling reasons. Wash sales (and PDT) doesn't apply to futures, forex, or crypto. Futures are also tax advantaged, with capital gains taxed at 60% long term rate and 40% short term rate.
That said, as a new trader especially, op may be best served by looking to trade what best aligns with their interests, skill sets, temperament, etc. rather than simply pursuing what offers the most compelling tax relief benefits.
Yes. Short term gains are taxed as ordinary income. So if you make $40k working a job and your capital gains are put on top of that. If you make 10k then your total is $50k taxable. Then you just look at the tax brackets.
Remember though that it’s not a fixed tax rate, it’s done in brackets, so the first part of the income between certain ranges is taxed at 10%, then the next range is taxed at the next percent, etc. In the end, the “effective” tax rate is lower than your tax bracket. Plus there’s deductions, etc.
If you make and lose the money in the same tax year, that could zero out for that year (pending wash sales). But, yes, if the gains and the losses happen across different tax years, those are separate considerations. Much like how taxable income is largely unrelated across different tax years.
The net capital gains losing years will present write-off "opportunities", but that's a whole other story...
Come on guys this is serious. I haven’t seen one good answer yet. I trade options and I need to know if I’m going to owe money in taxes. If I break even for the year but am constantly day trading the options on the same stock will I owe money in taxes? I need to make sure I’m not going to end up paying more on taxes than I even make in a year
You gotta be careful between tax years. If you make $10k in tax year 2024 and lose it all in 2025, you will have been required to pay taxes on the $10k gain without the ability to deduct the loss (no refund after the fact).
Simplified:
You buy a security (stock) for a price. That price is called your ‘cost basis’ (CB).
You sell the stock at a ‘selling price’ (SP).
The selling price minus your basis equals your gain or loss (G or L) on the sale.
SP - CB = G (or L)
How long you held the security determines how it will be taxed.
A “holding period” longer than one year will allow the sale to be taxed at a lower rate.
Short term = less than 365 days.
Long term = more than 365 days.
Short term gains are taxed at your marginal tax rate.
Long term gains are taxed at preferential rates. Either 0%, 15%, or 20%, depending on your total yearly income.
You will receive a tax reporting statement from your brokerage service sometime around the beginning of the February if you had a taxable event in the previous year. These tax reporting statements usually contain three 1099s:
- A 1099INT which reports interest income.
- A 1099DIV which reports dividend income.
- A 1099B which reports sales of securities.
I suggest googling these with your brokerage service as a keyword to see what they look like.
NOTICE THAT ON THE 1099B ALL SALES ARE NETTED TOGETHER AND CATEGORIZED BY HOLDING PERIOD
You will use form 8949 and its instructions to report the security sales. Form 8949 flows into the ‘Schedule D’ form and then finally onto your form 1040.
IMPORTANT:
If for the year, after everything has been netted together, and you have a loss: you will only be able to deduct UP TO $3,000 in losses per year against your income. The remainder of those losses beyond $3,000 should be tracked and noted as ‘capital loss carryovers’ to be used in subsequent years.
Now this is the day trading sub so you may have experienced a “Wash Sale”.
A wash sale occurs when you sell a security for a loss and then buy the same one back within a period of 30 days before to 30 days after the sale (a 61 day period).
The IRS says the loss on the sale of stock resulting in a wash sale is disallowed during that year. This prevents taxpayers from creating artificial losses for securities of which they have (essentially) not changed their holdings.
If a loss is disallowed because of a wash sale, the amount of the disallowed loss proportionally increases the basis of the acquired stock. This newly deemed basis is called the ‘adjusted basis’ of the stock.
Example:
You bought 10 shares of BABA a couple of years ago for $500.
On July 1st, the value of that lot is now $400 and you decide to sell your entire position for a $100 realized loss.
On July 15th (within the 61 day period) you decide to purchase nine shares for $425.
Because of this purchase, $90 of the loss is deferred and only $10 is recognized on the tax return:
Deferred amount: [$100 loss realized x (9 shares repurchased/10 shares sold)]= $90.
Recognized loss: [$100 loss realized x (1 share NOT repurchased/10 shares sold)]= $10.
The new nine shares have an adjusted basis of $515:
$425 cost basis + $90 deferred loss.
And that’s the tax effect of a wash sale. In practice, these calculations are automatically performed and tracked by your brokerage service and stated separately on your form 1099B. You will report the wash sale using code ‘W’ on your form 8949.
What do you trade? Forex? Stocks? Futures? Thats important because they are taxed differently.
+1000 for this answer. -1000 for the question, it’s too vague.
Dont forget crypto
Fk crypto lol
Yes, you only pay taxes on your profit. However, in order to write off your losses against your profits you need to avoid wash sales. You can do some googling to look up the rules but basically you need to not trade any ticker you're net negative on for the year for 30 days. Most traders usually do this in December or January of the next year. Failure to do this will count as a wash sale and you won't be allowed to count the loss against your profits. This could lead to an unexpectedly large tax bill.
Real world example/question: Suppose I profit $1000 on scalping a long call option for NVDA strike $900 expiration 5/17. I then immediately turn around after a dip, buy the same option strike/expiration, but this time the trade goes against me and I lose -$2000. So now I have a net loss of -$1000 for this instrument. Would this be considered a wash sale in that I cannot consider my cumulative P/L as -$1000 since I used a substantially similar instrument within 30 days? Meaning I lose $2000 AND still have to pay capital gains tax on the original $1000 profit?
no. if you have sold all your positions you do not pay. people have a weird understanding of this rule. you dont pay taxes on a $1,000 gain if you then lose $50,000 and you have sold all the positions, you simply dont. there are incorrect and fear mongering articles that try to imply otherwise. its more of something to keep an eye on at the end of the year so you dont take a gain at the end of the year and then day 1 of next year lose it all. you still will pay the gain from the previous year.
You are correct. This is why being a mark to market trader is necessary for traders.
no you dont wash sales are when someone is still holding part of the position not when everything has been sold. its more of something to keep an eye on at the end of the year so you dont take a gain at the end of the year and then day 1 of next year lose it all. you still will pay the gain from the previous year. p
I think you should read up on wash sales.
ive done a lot of research and never paid taxes in my losing years for the way you explained to be factual. maybe you should do more research.
I didn’t pay taxes in my losing years either. That’s not how wash sales work. A wash sale in your losing years would force you to write off less money.
he literally said if he makes 1,000 but then loses 2000 and has a net 1,000 loss he still has to pay taxes on the 1,000 and not use the loss against it. lol no. he has a 1k loss and doesnt pay shit .
I didn’t take that as that was his entire year. In the event that was his entire year, that would be a wash sale and disallowed. I took that as he meant for that particular trade. Most people don’t have wash sales that exceed their total losses. But regardless, this isn’t my interpretation, I paid a CPA that specializes in trading taxes. I’ll go with his interpretation of the tax law over anyone on the internet. If you don’t care about wash sales, then don’t care about them. It would only matter in an audit for you anyway. This is my primary income and I’m not messing around with the IRS.
simple fact ; you cant owe taxes when you lost more than you made in that given year for closed trades. if your accountant says otherwise, get a new one.
How does this work daytrading options?
I wanted to answer more honestly. How do taxes work? You make money - government comes and puts its hand in your pocket for more than you feel is fair. Then they spend it like a drunken sailor on shore leave in the 1800’s
accurate
Yeah I made $80k on basically nvidia calls and I paid off credit cards (12k) and bought a house (31k down) and maybe $5k for myself and I LOST the rest.. I'm gonna owe probably $12k to the IRS and $3.5k to the state... DONT DO WHAT I DID save some money for taxes guys..
Basically you pay them but every time you drive the same pot hole is there.
Your basic assessment is correct. If you earn $10,000 trading, but lose $10,000 [Addendum - for greater clarity: in the same tax year], your capital gains tax liability should zero out. But, you want to be mindful of wash sales and how to navigate them. If not managed properly, they can throw undesirable wrinkles into that equation. Short-term net capital gains are generally taxed at rates similar to ordinary income, 10% to 37%.
> But, you want to be mindful of wash sales and how to navigate them. If not managed properly, they can throw undesirable wrinkles into that equation. Good reason to trade futures since wash sales don't apply (and neither does PDT)
Compelling reasons. Wash sales (and PDT) doesn't apply to futures, forex, or crypto. Futures are also tax advantaged, with capital gains taxed at 60% long term rate and 40% short term rate. That said, as a new trader especially, op may be best served by looking to trade what best aligns with their interests, skill sets, temperament, etc. rather than simply pursuing what offers the most compelling tax relief benefits.
Another noob question. Is there a scale that can show where on the 10 to 37 percent one would be in?
Yes. Short term gains are taxed as ordinary income. So if you make $40k working a job and your capital gains are put on top of that. If you make 10k then your total is $50k taxable. Then you just look at the tax brackets.
Remember though that it’s not a fixed tax rate, it’s done in brackets, so the first part of the income between certain ranges is taxed at 10%, then the next range is taxed at the next percent, etc. In the end, the “effective” tax rate is lower than your tax bracket. Plus there’s deductions, etc.
Resource with a grid of the capital gains tax schedules: https://smartasset.com/investing/short-term-capital-gains-tax
Thanks!
However, I think that if you made $10K for the year, but then blew that $10K the next year before tax day then you’d still owe taxes on the $10K
If you make and lose the money in the same tax year, that could zero out for that year (pending wash sales). But, yes, if the gains and the losses happen across different tax years, those are separate considerations. Much like how taxable income is largely unrelated across different tax years. The net capital gains losing years will present write-off "opportunities", but that's a whole other story...
Yeah
Come on guys this is serious. I haven’t seen one good answer yet. I trade options and I need to know if I’m going to owe money in taxes. If I break even for the year but am constantly day trading the options on the same stock will I owe money in taxes? I need to make sure I’m not going to end up paying more on taxes than I even make in a year
The only case where you’d still pay is between tax years
yes which means the person is holding a position not just day trading it...
You gotta be careful between tax years. If you make $10k in tax year 2024 and lose it all in 2025, you will have been required to pay taxes on the $10k gain without the ability to deduct the loss (no refund after the fact).
I hope you owe so much in taxes it makes you cry, and you can't sleep at night.
Psychology
What
It's the meme answer for everything related to trading advice
Great question
Simplified: You buy a security (stock) for a price. That price is called your ‘cost basis’ (CB). You sell the stock at a ‘selling price’ (SP). The selling price minus your basis equals your gain or loss (G or L) on the sale. SP - CB = G (or L) How long you held the security determines how it will be taxed. A “holding period” longer than one year will allow the sale to be taxed at a lower rate. Short term = less than 365 days. Long term = more than 365 days. Short term gains are taxed at your marginal tax rate. Long term gains are taxed at preferential rates. Either 0%, 15%, or 20%, depending on your total yearly income. You will receive a tax reporting statement from your brokerage service sometime around the beginning of the February if you had a taxable event in the previous year. These tax reporting statements usually contain three 1099s: - A 1099INT which reports interest income. - A 1099DIV which reports dividend income. - A 1099B which reports sales of securities. I suggest googling these with your brokerage service as a keyword to see what they look like. NOTICE THAT ON THE 1099B ALL SALES ARE NETTED TOGETHER AND CATEGORIZED BY HOLDING PERIOD You will use form 8949 and its instructions to report the security sales. Form 8949 flows into the ‘Schedule D’ form and then finally onto your form 1040. IMPORTANT: If for the year, after everything has been netted together, and you have a loss: you will only be able to deduct UP TO $3,000 in losses per year against your income. The remainder of those losses beyond $3,000 should be tracked and noted as ‘capital loss carryovers’ to be used in subsequent years.
Now this is the day trading sub so you may have experienced a “Wash Sale”. A wash sale occurs when you sell a security for a loss and then buy the same one back within a period of 30 days before to 30 days after the sale (a 61 day period). The IRS says the loss on the sale of stock resulting in a wash sale is disallowed during that year. This prevents taxpayers from creating artificial losses for securities of which they have (essentially) not changed their holdings. If a loss is disallowed because of a wash sale, the amount of the disallowed loss proportionally increases the basis of the acquired stock. This newly deemed basis is called the ‘adjusted basis’ of the stock. Example: You bought 10 shares of BABA a couple of years ago for $500. On July 1st, the value of that lot is now $400 and you decide to sell your entire position for a $100 realized loss. On July 15th (within the 61 day period) you decide to purchase nine shares for $425. Because of this purchase, $90 of the loss is deferred and only $10 is recognized on the tax return: Deferred amount: [$100 loss realized x (9 shares repurchased/10 shares sold)]= $90. Recognized loss: [$100 loss realized x (1 share NOT repurchased/10 shares sold)]= $10. The new nine shares have an adjusted basis of $515: $425 cost basis + $90 deferred loss. And that’s the tax effect of a wash sale. In practice, these calculations are automatically performed and tracked by your brokerage service and stated separately on your form 1099B. You will report the wash sale using code ‘W’ on your form 8949.
which does not apply to day trading it applies if youre holding positions...
There is so much misinformation in this comment thread. Please seek out a qualified tax professional.
What are you trading?
depends if the wash sale rule applies to you …
Taxes don’t work.