Day trading taxes

Day trading taxes, everyone loves talking about making big Lamborghini money by trading an hour a day anywhere in the world. But not a lot of people talk about how to keep that money. So you don’t get the IRS coming after your ass every April. Before we start here is a mandatory disclaimer: I am not a CPA nor a financial advisor. I’m not licensed. I don’t know anything about taxes. Everyone’s tax situation will be vastly different. It’s your own responsibility to ensure all your taxes are filed correctly and legally by a professional. I have no idea what I’m talking about. I’m not even American. I know what you’re thinking right now, but but humbled trader, you are Canadian you are not even American how would you know anything about the pain of dealing with the IRS and paying taxes here in the US. Actually I spent a good 5 to 6 years in the US studying and working many many years ago. So I know a thing or two about parting with my precious Benjamins every April. And yeah, let me tell you, dealing with dual taxes with the CRA in Canada and the IRS in the US was not fun. I know I made a day trading tax video for the Canadian traders last week. But I wanna be fair to my American viewers. They deserve their fair share of bad jokes too. This is America! Equality for all. So in this video, we’ll be talking about day trading taxes in the US, what kind of status you qualify for whether as an ordinary investor or trader tax status. and the associated tax breaks you can utilize to save money, legally. All these terrible jokes, I mean day trading tax research really took me a lot of time to prepare. So I’d really appreciate if you drop alike at the bottom of this video. So when we’re looking at stock market taxes in general in the US as a regular investor or trader, there are 2 distinct tax rates to know, long term tax rate, and short term tax rate. Let’s say you make $100K last year in the stock market. And those were profits from positions you held longer than a year. So basically not from day trades. That capital gain would be taxed at only 15%as long term investments. So the total taxes owed to the IRS is $15k, and your take-home is $85,000. That’s a pretty favorable tax rate. And if the long term gains are less than $37,375in 2019, and less than $40,000 in 2020, You have not taxed anything at all on that income federally. That wasn’t a joke btw. Which is like, wow, the kindest thing theIRS has ever done. However, if we’re talking about day trading here, that usually means you buy and sell positions often within the same day, that would be considered short term investments. And the same thing for swing trading as well, you are probably holding a position for a few days to a few weeks. Both day trading and swing trader profit would fall under short term investment. Which is taxed as your ordinary income. So that same 100K capital gain would be taxed at your income bracket at 24%. You would owe the IRS $24,000, and the takehome is only $76K. This is why it’s so important to keep your long term investment account and your short term day trading or swing trading accounts separate, for accounting purposes. You don’t want to have to deal with a nightmare trying to figure out which investment profits are from long term and short term each spring. Of course, for both the short term and long term investment examples are with federal tax only, you’ll have to factor in the state tax you’re in yourself. That’s the basic summary of what kind of taxes you’ll have to pay if you are a short term trader that falls under the ordinary investor status. So if you’re a part-time trader trading on the side while working a full-time job, beginner trader with a small account, and really 90% of day traders out there fall under this investor status category under the eyes of the IRS. But, as ordinary investor status, which is 90% of day traders out there, you are allowed limited tax breaks. Yes, You can claim your losses to offset your gains. This works for both long term and short term capital losses against the gains. This is if you are not positive about the year. Now, what if you had a terrible year in the market overall, and you ended the year net negative. for both investing and day trading. You can deduct up to $3,000 of your losses against your income. Yes, you heard that right, only $3000. So if you’re chasing that penny stock breakout this week and made $1000, but next week you do the same and lose $5000. You can only claim $3000 out of that $4,000 loss. And this is for the entire year, you can only claim $3,000 loss against your income. That’s like, not even enough to afford that$5000 DVD. Any losses over $3,000, it’s just a straight loss, its gone, that Lamborghini money is washed down the drain. Just kidding, you can carry over that excess capital loss credit into the next 8 consecutive years. Which is better than Canada, Canadian investors can only carry our losses over for 3 years, but we don’t have a max $3000 cap, we just have better jokes.