Optimize your deal qualification process for accounting and tax with airSlate SignNow

How to create outlook signature

day trading taxes everybody wants to know how to make money but not a lot of people know how taxes work when it comes down to day trading we're gonna talk about day trading taxes in this video so make sure you guys stay tuned what's going on guys so today we're talking about day trading taxes and I want to make it very clear that I am NOT a professional tax person by any means so whatever I say in this video take it with a grain of salt until you go out and you talk to a professional if you have real questions and you're wondering about your personal taxes please please go out there and find a professional who is actually certified and knows what they're talking about but let's just talk about day trading taxes and how it works so basically the way that the IRS looks at taxable income when being a day trader is that as a day trader the money that you're making is like you're self-employed so you're like a 1099 contractor in the sense that you don't really have a boss you're not really paying in social security you're not paying this stuff but you're making income there's income coming into your account right so you're making money as a day trader so you got to pay taxes on that so let's talk about how that works first off if you are a trader a normal just trader slash investor and you make a lot of trades the maximum amount of money that you're allowed to deduct for your losses is only three thousand dollars so if you lose ten thousand dollars in the first year of your trading journey you're only allowed to deduct three thousand dollars per year as net capital losses so that's something to think about if you're losing a lot of money and you're planning on writing that loss off at the end of the year you can only write off three thousand dollars maximum as a loss okay remember that think about that now another good thing is you are allowed to deduct things like margin account interest you're allowed to write off your computer your internet all the stuff that comes with being a day trader because remember you're a self-employed person as a day trader so you're self-employed and you're allowed to write off a lot of the expenses that come with being a self-employed day trader like I said computer your internet whatever you're basically using to make money your maybe your office things like that depending on how your house or your office or however that's set up remember talk to a professional before you go and do these things but like I said you're allowed to write off a lot of the expenses that come with being a day trader now a lot of people talk about mark-to-market traders if you qualify as a trader the IRS has a deal for you under normal circumstances when you sell a stock for a loss you get to write off that amount but if you buy within 30 days before or after you sell the IRS considers this a wash sale now you have a tax accounting nightmare to handle with at that point fortunately you can become what is called a mark to market trader meaning that you will automatically become exempt from the wash sale rule now here's how mark-to-market works on the last trading day of the year you pretend to sell all of your holdings if any even though you still really hold the stocks you book all the imaginary gains and losses of that day for tax purposes you then begin the new year with no unrealized gains or losses as if you had just bought back all the shares you pretended to sell being a mark to market trader has no other advantage being a mark to market trader has another advantage normally investors like I said earlier or traders can only deduct three thousand dollars in net capital losses per year but a mark to market trader can deduct a unlimited amount losses which is a plus in a really awful market or a really bad year of trading as a mark to market trader you should be you are allowed to report your gains and losses on your part to of IRS form forty seven ninety seven so that's an option again I would talk to a certified professional accountant and learn more about that I think it would be a really kind of good way to do it and learn if you can qualify for the mark-to-market exemption so you don't to worry about the wash sale rule and remember there's a lot of paperwork and a lot of issues but let's talk about like how does it actually work you know what's the deal with being taxed all right so let's look at like this so basically your long term your short term investor long term investments those are held for more than a year and are taxed so let's look at it like this you have long term investments in short term investments when it comes to trading or investing let's look at it like this long term investments are those investments you hold for more than a year and then short term investments are less than a year and the longer term when you hold a stock for more than a year that is a long term investment and it qualifies as a long term tax rate in terms of having it for longer verse the regular tax rate so let's say you make over $500,000 a year with long term investments those are stocks you hold for over a year your tax rate is going to be 20% now if you're making money in the short term and you're buying and selling stocks every single day you're not holding long term that tax rate for over 500 thousand dollars a year is gonna be thirty nine point six percent again make sure you check with a certified professional accountant before using all this but just for example let's say you make you know nine thousand to thirty seven thousand dollars a year your tax rates gonna be fifteen percent of that profit paying to IRS now if you make ninety thousand to one hundred and ninety thousand dollars that tax rates gonna be fifteen percent for a long term tax rate and for a regular short term tax rate you're paying twenty eight percent again we already talked about capital loss if you're trading with a normal investor profile you can only write-off $3,000 in taxes per year all right so you might have heard about people trading in a ra account how does that work and why would you do that the reason that people day trade in a IRA account is because it allows you to defer or avoid taxes on dividends and capital gains all of your profits can be reinvested tax-free and some of the restrictions about using an IRA account is that there's rules with the IRS which means you're not allowed borrowing from an IRA account this means no short selling and leverage using margin in the sale of naked or naked put or call options some brokerage firms allow you to trade different ETFs and vice versa based on how much money you're making from maybe your nine-to-five job or if you have other money that you're making your taxable income is basically just gonna be absorbed into that and then add it up at the end of the year and it's gonna adjust with your tax rate and vice versa so it's basically like having a second job and being a self-employed contractor for that job so imagine the stock market is like a business that pays you and you're a 1099 contractor you're taking that income in and then you're paying those taxes at the end of the year based on how much money you make so if you make a ton of money obviously you're gonna be paying a lot in taxes if you make no money at all don't worry about it you're not gonna be paying a lot of taxes on that so it's very kind of vice-versa and depending on how you're trading and learning about all that as well so make sure you spend more time kind of talking to a professional if you're making a lot of money you should definitely talk to professional if you're just starting out just keep in mind how it works and kind of learn more about that overall process and also maybe learn more about if you are able to qualify for the mark-to-market exemption with the IRS you don't have to pay the wash sale rule so a lot of things to learn about I've heard about people having nightmares before where they end up making it money training and then at the end of the year they end up owing a lot of money because they had a lot of wash sales and they had a lot of stuff going on so you need to understand how that works and again like I said if you're a normal trader and you're not qualified for the mark-to-market exemption then you will only be able to write off 3000 dollars in net losses for that year I believe that you can kind of move their losses on for the next couple years again not a professional by any means but that's basically what I've been told I have an accountant that handles most of my stuff so I'm not worried about it but if you guys are really wanting to learn more like I said talk to a certified tax professional and you guys will be able to learn more then so there it is taxes day trading the stock market investing they're all things that you need to learn not just about trading but you got to learn about taxes when it comes down to the bigger picture here at the end of the year the last thing you want to do is be like oh my gosh I've got a problem so you guys haven't ready do me one more favor you want to learn more about day trading you want to learn more about life and all that fun stuff hit that subscribe button I will talk to you guys later on [Music] you