Own shares or cryptocurrency with Robinhood? This is how you will be taxed
Robinhood is a popular brokerage that many investors use to buy or sell stocks, cryptocurrencies, and more. If you’re one of the millions of investors using the Robinhood app, you need to understand the tax rules that might apply to you.
It can be complicated to understand the rules for taxing Robinhood shares and other assets, as how you are taxed depends on the assets involved. It also depends on other factors, such as how long you own a particular asset.
This guide to taxes on Robinhood shares and other assets will help you better understand your IRS obligations.
How do taxes on Robinhood shares work?
Stocks are considered capital property by the IRS. Therefore, if you sell a stock and make money doing it, you will generally have to pay capital gains taxes on your profits.
The amount you owe will depend on your basis, which is usually the original price you paid to buy the shares.
For example, if you bought a stock for $1 a share and sold it for $5 a share, your basis would be $1 and you would have $4 of profit on which you owe taxes.
Income from a stock sale is taxed differently from income earned at your job. It is subject to capital gains tax, and there are different tax rates for capital gains depending on whether you have a long-term gain or a short-term gain.
If you own the stock for at least a year and a day before selling, you are subject to long-term capital gains tax.
Long-term capital gains are taxed at a lower rate than your ordinary tax rate, which has tax brackets based on your income.
In fact, many people have a 0% capital gains tax rate if their income is less than $41,675 as a single filer in 2022 or if their income is less than $83,350 as a joint filer. during the same year.
The top capital gains tax rate is actually 20%, and that only applies to people with income above $459,750 as a single filer or $517,200 as a declaring married spouse.
However, if you don’t own the stock for more than a year, you may be subject to short-term capital gains tax. These are taxed at your ordinary rate, which can be much higher.
You also have the option of compensate for capital gainswhich means potentially reducing your taxable gains by claiming losses.
For example, if you have $500 in gains and then sell assets on which you lost $500, you can offset your gains and not owe tax on any of your profits. Many investors practice tax-loss harvestwhich means strategically planning the sale of losing assets to avoid paying taxes on assets that have recorded gains.
However, you cannot sell an investment at a loss to claim the capital loss and then replace it with the same investment or a substantially identical investment within 30 days. For example, if you were down $500 on shares of ABC Company and sold the shares, but bought them back two days later, you wouldn’t be able to write off that investment loss.
How do Robinhood cryptocurrency taxes work?
If you are buy cryptocurrency like bitcoin through the Robinhood platform, it is important to understand how taxes will work on it.
Cryptocurrency is treated as a form of digital property and is taxed like many other fixed assets would be. As a result, you will pay long-term or short-term capital gains taxes if you sell cryptocurrency for a profit.
Whether you are taxed at the reduced long-term rate or the higher short-term capital gains tax rate will depend on whether you have owned the crypto for more than a year or not.
If you convert one cryptocurrency to another, you technically sold the original coins before buying the new ones. Therefore, this is considered a sale and you will be subject to short or long term capital gains taxes depending on the length of your property.
If you sell cryptocurrency at a loss, you may be able to claim a capital loss and deduct the amount lost against any profit that would normally be considered taxable.
Robinhood Tax Documents
Robinhood will send you tax documents each year to help you report income from your investments. You can receive:
A Form 1099 from Robinhood Securities whether you have had any taxable events related to stocks, mutual funds, ETFs or options. This could include interest income, dividend payments. sales of stocks, mutual funds or options, or miscellaneous income.
A Robinhood Crypto 1099 IRS form whether you have sold cryptocurrencies or received various income from Robinhood Crypto during the year.
A modified 1099 form from Robinhood Securities or Robinhood Crypto if errors were made on your initial forms.
A lot of best brokerage accounts provide online access to tax documents. Robinhood offers this access, and your 1099 will usually be ready to view by mid-February, so you have plenty of time to provide the information to your tax professional or enter it into whatever tax software you use.
It is also possible to upload your 1099 form from Robinhood directly into TurboTax. TurboTax will ask you for the name of your bank. After entering it, along with your account number, you can import a consolidated 1099 form directly from Robinhood.
File taxes on Robinhood assets
Taxpayers generally report investment income on their 1040 tax forms, just like any other income would be reported. Where exactly you report your income depends on the type of investment income you earned. For instance:
A capital gains distribution would be reported on line 7 of Form 1040. In some cases, it would need to be reported on Schedule D, line 13. Schedule D is a separate tax form used to report specific tax transactions. IRS, such as the sale of capital assets that are not otherwise reported on other tax forms.
Gains or losses from the sale of stocks or bonds would be reported on line 7 of Form 1040. You can calculate gains and losses on Form 8949, Schedule D, which allows you to provide a description of ownership, date of acquisition and sale, proceeds, cost or basis, any adjustment to gain or loss, and amount of gain or loss.
If you received, sold, or disposed of cryptocurrency, you must check Yes to a question about cryptocurrency activities on your Form 1040. You can use Form 8949 to determine your gains and losses and report them. on Schedule D of Form 1040.
The best tax software facilitates the declaration of your investment income and the calculation of the taxes payable. However, working with an accountant or other tax professional can be helpful if you are unsure of which forms to use or if you have a complicated situation where you have sold many investments during the year.
How does paying taxes work with Robinhood?
When you sell assets that you purchased with your Robinhood account at a profit, you will likely be taxed on the money you earned. This is the case with cryptocurrency, stocks, mutual fundexchange-traded funds (AND F), and other assets.
You will need to report earned income each tax year on your tax form and pay capital gains taxes. If you owned the assets less than a year before the sale, you may be taxed at the short-term capital gains tax rate. This is your ordinary tax rate.
If you have owned the assets for more than a year, you may be taxed at the most favorable long-term capital gains tax rate. It could be as low as 0%.
How much do you pay in taxes on Robinhood shares?
The amount of tax you will pay on Robinhood shares depends on whether you make a profit. You only pay taxes if you sell a stock for more than you paid. If you sell a stock for profit within a year of buying it, you are taxed at the short-term capital gains tax rate.
If you’ve held the stock longer, the more favorable long-term capital gains tax rate generally applies and ranges from 0% to 20% depending on income.
If you made a profit, you could offset that profit and potentially reduce your tax bill by selling losing investments and claiming capital losses. This is called tax-loss harvesting.
However, if you sell an asset at a loss and buy the same or too similar an asset within 30 days, a rule called the wash sale rule generally prevents you from claiming losses.
What happens if you don’t file Robinhood stock tax returns?
You are required to report all income, including profits from the sale of Robinhood stock, on your tax return. If you fail to report your income, you could face consequences, including tax penalties.
Robinhood reports your investment income to the IRS, so the IRS will know if you are selling stock for profit and not reporting the proceeds.
At the end of the line
If you are invest money on Robinhood, you need to know how taxes work. If you sell stocks or cryptocurrency for a profit, you must report the proceeds and pay any taxes due to the IRS.
Robinhood provides tax forms that will help you, and you should consider speaking with a tax professional, such as a CPA, if you are unsure of investment tax rules or what you need to do to meet your tax obligations. IRS.
You can also read more about the platform in our Robinhood Review.
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