How do day traders and investors pay their taxes?

[Peter K]

I am about to start trading/investing using an online broker, I keep wondering how my taxes will be accounted for. Do traders pay on their yearly profit? or do they pay taxes on the profit of each individual trade?

For example, I put $1000 in my account.
-I make a trade using $500 and make a profit of $200.
-I make a 2nd trade using $1200 and make a profit of $400.
-I make a 3rd trade using $1600 and lose $200
-I make a 4th trade using $500 and lose $200

So do I pay 30% taxes on the net profit of $200. Or do I pay 30% taxes on each of the first 2 trades, which brought in $600?

Do you pay any taxes on the losses too, like the 4th trade, I cut my loses and brought back $300, do I pay taxes on it?

Do you have to track interest and dividends so that you pay taxes on them? I saw one trader's account getting a dollar overnight and he said it was interest, do you have to track these little interests, there could be thousands of them and you never know about them since you make too many trades a year?

Do you only pay taxes on the money you withdraw from your trading account, or you pay even if it's still in there?

thanks

 

[Redneck]

http://www.greentradertax.com/


I'm a satisfied customer - nothing else

RN

 

[Iron.Maiden]

Another happy customer of Green trader tax.

 

[stevegee58]

Dude you've clearly never done your own taxes before so you probably shouldn't be trading either.

 

[Stockmarketmap]

Taxes ... Yet another, rarely mentioned, time consuming and expense bite ( using a tax preparer for a yearly $400 bucks and up ) that trading requires. Not to mention the occassional letter that you can receive from the IRS a year later, if you prepare them yourself and make a mistake ...

One smart thing that you can do is to open and annually fund a Roth IRA. Within it, invest with a longer term time frame ( invest in small cap value or mid cap growth via ETF ). It's tax deferral ( and no tax preparation with the exception of certain types of income thrown off by MLP's ) helps the compounding of longer term asset growth. I opened one in 2000 and I have my 20 year old daughter in one using this investment process ( research paper here https://docs.google.com/presentation/d/1pQuBfbPd18ca0G-KiZc5FIWNMx0pNa87INgsLjEwuzY/edit?usp=sharing )

 

[i am nobody]

I am about to start trading/investing using an online broker, I keep wondering how my taxes will be accounted for. Do traders pay on their yearly profit? or do they pay taxes on the profit of each individual trade?

Maybe first worry about the fact that you should make consistantly profits, before worry about taxes? That might be a bigger problem than taxes. Most traders never encounter the second problem as they can already not overcome the first one.

 

[i am nobody]

Do you pay any taxes on the losses too

Belgium is probably the only country in the world where this indeed happens. Losses are NOT deductible. So that part is already answered.

 

[ETcallhome]

you are expected to pay estimated taxes each quarter. It gets kind of silly. The IRS thinks what you made the first quarter is what you will make the next three quarters and expects you to pay estimated taxes on that amount. If you are a trader, you will probabaly bet your next three quarters will not be as good if your first quarter was really good, so you will under estimate, in hopes you are so wrong you must pay a penalty for underpayment.

 

[GotherL]

They're not gonna look into every individual trade you've done so you just calculate your total profit by the end of each quarter. In Canada, (where I am from.) you only have to report yearly.

 

[ETcallhome]

Taxes ... Yet another, rarely mentioned, time consuming and expense bite ( using a tax preparer for a yearly $400 bucks and up ) that trading requires. Not to mention the occassional letter that you can receive from the IRS a year later, if you prepare them yourself and make a mistake ...

One smart thing that you can do is to open and annually fund a Roth IRA. Within it, invest with a longer term time frame ( invest in small cap value or mid cap growth via ETF ). It's tax deferral ( and no tax preparation with the exception of certain types of income thrown off by MLP's ) helps the compounding of longer term asset growth. I opened one in 2000 and I have my 20 year old daughter in one using this investment process ( research paper here https://docs.google.com/presentation/d/1pQuBfbPd18ca0G-KiZc5FIWNMx0pNa87INgsLjEwuzY/edit?usp=sharing )

James
director, Quantitative research
stockmarketmap.wordpress.com
Boulder, CO

traders can't open a Roth IRA because they have no earned income