One thing people were never taught about, was that they have to pay taxes on all money earned, gained through investment, won during gambling at the casino, or winning the lottery.
During this past week, many that invested in GameStop, AMC or any of the other stocks that sored in value due to social media chatter did not think about the taxes that they will have to pay. Some investors may have notched tens of thousands of dollars – even millions in profits. Depending on when they sell the stock, they may owe hefty capital gains taxes. Those gains are on paper, of course, until the holder sells the shares. And taxes for stock sales occurring this month wouldn’t be due until April 2022.
If those investors want to cash in on their gains, they may be caught off guard by how much they owe the government, accountants say. Unlike with employment income, there’s no automatic deduction of taxes.
Younger investors new to trading, do not not fully consider that they have to pay taxes on their gain and may be tempted to spend much of their windfall. They need to be putting some of the gain aside to cover for the taxes they will have to pay.
Tax calculations are complicated. A trader would best need to contact a tax professional to help them with knowing exactly what they will have to pay. Traders can also use a Capital Gains Tax calculator to help give them an estimate of how much they will be paying and need to put aside now as to not spend those gains.
Someone who bought and sold GameStop shares quickly, in the midst of the trading frenzy that began in early January, would probably pay very high tax rates.
Short-term gains — those on shares held for less than a year — don’t get favorable tax treatment, but are taxed as ordinary income. Rates vary by your tax bracket (currently there are seven, depending on your income and filing status), starting at 10 percent and rising as high as 37 percent. There is also an extra 3.8 percent “net investment income tax” that applies to high-earners (individual filers making more than $200,000, and married couples filing jointly making more than $250,000), for a rate of 40.8 percent.
Say a high-income investor bought 100 shares of GameStop on Jan. 4, when the shares traded at $17.25, paying $1,725. Then, the trader sold the shares on Jan. 27, when they hit $347.51, reaping $34,751, for a gain of $33,026. The tax bill, for someone in the top income bracket, would be an estimated $13,475.
And that’s just federal taxes. Many states and cities assess their own capital gains taxes or treat capital gains as ordinary income, which is taxed at higher rates.
Do you think that the investors that made money from GameStop, AMC, and the other stocks have really thought about how much taxes they are going to have to pay after they sell, and are they prepared for it?
Click on the “Full Loaf” icon for the full article! After you read the article come back and tell us your thoughts.
I believe experienced investors and the ones that really know what they’re doing knew what they was getting themselves into unlike inexperienced stock buyers and sellers; therefore the experienced may have been prepared for this.
no, not many people take taxes into consideration with anything. I do think for experience investors looked into this