I was lured into the meme stock craze. What should I know?
The federal government comes to collect its share of your winnings. If you trade in a regular brokerage account (not a tax-advantaged individual retirement account, for example) and make a profit, you may owe capital gains taxes.
Short term gains – those realized after the sale of shares held for one year or less – are taxed at the rate of your ordinary income. The more favorable long-term rate comes into play when the shares are held for more than a year. (High-income investors will often owe an additional 3.8% “net investment income tax” on gains, regardless of how long they hold the stock.)
Losses insultedt gains and up to $3,000 of net capital losses can be deducted from your ordinary income. Any remaining losses are carried forward to future years.
There is a catch that might surprise many enthusiasts, known as wash sales. If, for example, you sold shares at a loss then quickly redeemed them, the initial loss cannot be used to offset other gains. Your brokerage should have sent you a Form 1099-B exposing your gains, losses and unauthorized fictitious sales.
If you quit your job to trade full-time, you could potentially qualify for what is known as trader tax status. Robert A. Green, CEO of Green tax for traders, which specializes in tax planning for merchants, said this status could allow you to deduct some large expenses and take advantage of other benefits. (You can also get more flexibility on wash sales, but now it’s too late to get it for 2021).
I continued to work from home. Can I write off certain expenses?
Probably not, unless you were self-employed, gig worker, or independent contractor.
Not even part of the phone bill? An office chair? “It will always be a no, unless you have your own business,” said Cherie Mason, president of Basic tax and financial solutions in Denver.
