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How will taxes work?

Hi, first year on Quantopian so I haven't dealt with the issue of taxes yet but would like to know what's coming. I am looking at my Robinhood account statement and I'm noticing it is very very long. Since my code can be doing tens of buys and sells every day, the volume of transactions add up. Will I need to attach these statements when I do my next tax returns, worse yet have to do math across individual transactions, or do I just need an initial/end balance and how much money I put into Robinhood? If transaction (buy then sell) A profits x dollars, and transaction B loses x dollars, do I get taxed on the 0 net profit, do just I get taxed on the x dollar profit, or somewhere in between? Since stocks are held for less than a year, it gets taxed as income rather than capital gains - would this be as income on top of my day job income? Am I going to be able to get by with HRBlock or Turbotax or am I going to need professional tax services?

4 responses

You should receive a tax document from robinhood. Like a w2 or a 1090, and you can just add it as a supplementary income.
https://support.robinhood.com/hc/en-us/articles/210216743-Tax-Center

Looks like at worst Turbo tax premier should cover it then. Thanks.

Yeah, or if your income is higher than average you could goto a cpa or a tax accountant.

Imaginary paper profits are exciting but oh the down and dirty of real taxable profits...

  1. No you generally don't need to include any statements from your broker with your taxes. You will receive a 1099 form from Robinhood listing all your trades that you then use to fill out your profit and loss on Schedule D.

  2. Yes, you need to enter EVERY buy/sell pair that you made or lost money on Schedule D (these should be included on your 1099-B). One line for every trade pair. Some will be negative (you lost) and some will be positive (you gained.. hopefully more than you lost). The net is what you get taxed on.

  3. Any stock, and most ETFs and ETNs, held for less than a year will generally be taxed as regular income.
    Some ETFs however, have special taxation and they can be pretty interesting. For instance short term gains in futures based ETFs (like USO or DBC) are taxed as 60% long term rate and 40% short term rate regardless of holding period. Some ETFs (like USO ) are really limited liability corporations and you will get a form K-1 at the end of the year. In addition to the capital gains, you will need to enter the LLC income or loss on Schedule E (and either pay or get a deduction based upon that). Oh, and by the way, some of these ETFs are notorious for sending their K-1 forms out very late like March or April, so it's not uncommon to then file an amended return when one of them unexpectedly shows up in the mail.
    Trading GLD is interesting. It DOESN'T generate long term capital gains but is considered a collectable by the IRS and is taxed at a fixed 28%. Can be a big surprise when expecting to pay only the long term rate. Short term gains are the same as stocks.
    Along the way of trading stocks you will also accumulate some dividends here and there. These magically show up as cash in your account, but also magically show up on the 1099 form from your broker. You need to enter these amounts on form 1040 line 9a and you will be taxed accordingly.
    One other interesting rule is called a 'wash sale' (not to be confused with 'wash trading' which is illegal). A wash sale occurs when you sell a stock at a loss and within 30 days you buy it back. This can happen a lot if one is doing pair trading for instance. You cannot use that loss to offset another gain.

  4. Oh, and yes, all of this is on top of your day job income. If you make a profit it get's taxed as income. If you take a loss however, then only the first $3000 can be used to offset (reduce) your day job income. Any losses over $3000 can be carried over to use to offset capital gains or ordinary income next year.

  5. You maybe want to use a professional tax service, however, I have found TurboTax Professional works pretty well (I haven't been audited yet). You can import a CSV file of your trades and it does all the form filling and calculations for you. Not sure how well it handles the special ETF taxation cases though. I think it automatically handles wash sales though.

I'm no tax expert, so double check all of what I've said, but these have been some of my 'interesting' experiences.