I was lured into the meme stock madness. What do I need to know?
The federal government is coming for its share of your winnings. If you were trading in a regular brokerage account (and not a tax-advantaged individual retirement account, for example) and made a profit, you may owe capital gains taxes.
Short-term gains â€” those realized after selling shares held for one year or less â€” are taxed at your ordinary income rate. The more favorable long-term rate kicks in when shares are held for more than a year. (Higher-income investors will often owe an added â€œnet investment income taxâ€ of 3.8 percent on gains, regardless of how long they held the stock.)
Losses offset winnings, and up to $3,000 in net capital losses can be deducted from your ordinary income. Any remaining losses carry into future years.
Thereâ€™s a catch that could surprise many amateurs, known as wash sales. If, for example, you sold shares at a loss and then quickly bought them back again, the initial loss canâ€™t be used to offset other gains. Your brokerage should have sent you a Form 1099-B laying out your gains, losses and disallowed wash sales.
If you quit your job to trade full time, you could potentially qualify for whatâ€™s known as trader tax status. Robert A. Green, chief executive of Green Trader Tax, which specializes in tax planning for traders, said that status could allow you to deduct some significant expenses and take advantage of other benefits. (You can get more flexibility on wash sales, too, but itâ€™s now too late to get that for 2021).
I continued to work from home. Can I write off certain expenses?
Probably not, unless you were self-employed, a gig worker or an independent contractor.
Not even part of the phone bill? A desk chair? â€œThat is still going to be a no, unless you have a business of your own,â€ said Cherie Mason, president of Cornerstone Tax and Financial Solutions in Denver.