Hi everyone,
First post, and self-declared trading newbie here
I'm a lover of technical analysis and, having spent most of my time analyzing engineering problems, I've decided to branch out and learn the ins and outs of trading on the market. Special focus on market indicators, stochastic analysis, etc. I'm also in the middle of putting together a .NET program to cleanly display market data from Quandl's Wiki EOD as a fun project (I know, I'm probably one of millions doing this).
This forum has been an incredible resource for me over the past several months so I figured I'd post a question that's been on my mind.
The short of it: How do people afford taxation on short-term trading (on the scale of days to months, rather than years)?
The long of it: I have a friend who has a normal 8-5 job and makes well below $100K. He does short-term trading on the side and, with his method of technical analysis, says that it "sure as hell doesn't make me rich", but does supplement his income rather nicely. So, being new to this, I looked up the tax codes and found that for long-term trading (longer than a year) you get taxed upon realization of gains at 15%, and for short-term trading (shorter than a year) you get taxed at your income level upon realization of gains. So let's say that hypothetically, he averages just one trade a month: he's realizing gains 12 times in a year. Assuming he keeps all of his gains from each of his trades in the market (i.e. to hop from one stock to the next), he'd still get taxed at the end of the year as if he had taken those gains and put them in a bank account somewhere.
So in my mind this boils down to one of two scenarios here:
1.) I'm completely wrong about my assessment, which is entirely feasible
OR
2.) He had better have enough money lying around on the side to handle paying taxes on his trades at the end of the year, because he sure isn't living off of his market worth...
I guess one way to ensure you're able to handle taxation on your trades would be to liquefy some amount of your gains as you make each trade and put it aside?
Some help in understanding this would be great here. I feel like I'm missing a key piece of information.
First post, and self-declared trading newbie here
I'm a lover of technical analysis and, having spent most of my time analyzing engineering problems, I've decided to branch out and learn the ins and outs of trading on the market. Special focus on market indicators, stochastic analysis, etc. I'm also in the middle of putting together a .NET program to cleanly display market data from Quandl's Wiki EOD as a fun project (I know, I'm probably one of millions doing this).This forum has been an incredible resource for me over the past several months so I figured I'd post a question that's been on my mind.
The short of it: How do people afford taxation on short-term trading (on the scale of days to months, rather than years)?
The long of it: I have a friend who has a normal 8-5 job and makes well below $100K. He does short-term trading on the side and, with his method of technical analysis, says that it "sure as hell doesn't make me rich", but does supplement his income rather nicely. So, being new to this, I looked up the tax codes and found that for long-term trading (longer than a year) you get taxed upon realization of gains at 15%, and for short-term trading (shorter than a year) you get taxed at your income level upon realization of gains. So let's say that hypothetically, he averages just one trade a month: he's realizing gains 12 times in a year. Assuming he keeps all of his gains from each of his trades in the market (i.e. to hop from one stock to the next), he'd still get taxed at the end of the year as if he had taken those gains and put them in a bank account somewhere.
So in my mind this boils down to one of two scenarios here:
1.) I'm completely wrong about my assessment, which is entirely feasible
OR
2.) He had better have enough money lying around on the side to handle paying taxes on his trades at the end of the year, because he sure isn't living off of his market worth...
I guess one way to ensure you're able to handle taxation on your trades would be to liquefy some amount of your gains as you make each trade and put it aside?
Some help in understanding this would be great here. I feel like I'm missing a key piece of information.
