Robinhood daytrader owes 800K to IRS on a profit of 45K

gkishot said:
There is something wrong with this article. According to this article a day trader can never deduct a loss if he/she trades the same stock all the time. If this is the case there should be much more people suffering from the wash sales rule than just one guy.
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Yeah the article doesn't have all the information. A 30 day window is required to buy something back after it's been sold to prevent a wash sale. If it's been sold permanently for more than 30 days then the wash sale(s) aren't enforced. The IRS doesn't have the manpower go through every single persons taxes and make sure this is enforced across the board though. I'm sure they look at size and random samples.
 
So this would mean that the trader had huge losses to make finally 45K profit?
Because the losses could not be deducted, which means that 800K taxes were levied on profits that could not be reduced by the losses. I don't know the taxation rate as I live in EU, but at a 25% tax rate it would mean that 3.2 millions losses (800K divided by 25%) could not be deducted and the loss is added to the cost basis of the new investment.
If that is true it is a incapable trader to me.
 
The 1099-B only lists "proceeds" from stock sales, hence the initial huge tax bill. It is the trader/taxpayers responsibility to fill out the schedule D, and establish a true cost basis for all the trades, which should largely correct the problem.
 
Does the wash sale rules apply also for foreigners who live abroad and who can profit from a double tax treaty?
I suppose they dont have that problem as IRS does not apply on them.
 
when I filed tax I did not calculate wash sale. I only reported gain that year. I am active day trader. No position holds over a few days. Irs would not be interested looking at my each trade. If your position holds many months, then take a loss before the year end, then buy back,your purpose is clearly avoiding loss. Wash sale comes into play in this case
 
Does the wash sale rules apply to stocks you actively trade on traditional or Roth IRA? If no, what happen when you take the money out when you reach 59.5? Do you get tax on those profit? Or if you had loss, can you write it off?
 
The store does not make sense. You don't lose the loss deduction because you didn't wait 30 days. It just get added to the cost basis so your next profitable position is not that profitable.
So, everything works out the same in the end. Just more booking required.
 
swingtrader123 said:
The store does not make sense. You don't lose the loss deduction because you didn't wait 30 days. It just get added to the cost basis so your next profitable position is not that profitable.
So, everything works out the same in the end. Just more booking required.
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Huh? That's completely wrong.

https://www.investopedia.com/terms/w/washsalerule.asp

Wash-Sale Rule Example
For example, you buy 100 shares of XYZ tech stock on November 1 for $10,000. On December 15, the value of the 100 shares has declined to $7,000, so you sell the entire position to realize a capital loss of $3,000 for tax deduction purposes. On December 27 of the same year, you repurchase the 100 shares of XYZ tech stock back again to reestablish your position in the stock. The initial loss will be not be allowed to be counted as a tax loss since the security was repurchased within the limited time interval.
 
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