The only thing I like about this whole Robinhood trading platform is how much it makes me think of my favorite Disney movie, the 1973 animated classic Robin Hood! And who is the bad guy? Watch for a little reminder.
What are the social media addicts trading GameStop and AMC Entertainment missing? Yes, the list is long, but here I am focusing on TAXES. And they are learning right about now that Reddit is not the only one interested in their big trading profits. The IRS is too!
Totally made-up example: I am a single dude making $90,000/year.
- I buy 100 shares of GameStop at $10/share. My cost basis $1,000. Two days later, I sell my shares for $1,600. I have created a short-term capital gain of $600 on which I owe my income tax rate of 24% ($144).
- I can’t stand being left out of the excitement, so 3 days after I sell, I take my $1,600 and buy more GameStop. It goes up to $3,000 in 4 days, so I sell again. Short term capital gains on $1,400 x 24% = $336
- OMG, FOMO is taking over! 10 days after promising myself I’m out of this crazy game, I take my $3,000 and buy more GameStop Stock. It goes up to $6,000! I am an investing genius!!
- Then, GameStop stock drops and my position is worth $1,000. That’s it! I’m out! At least I have my $1,000 that I started with, right?
- Sorry, Bro-seph, that $1,000 you think you still have is going to be worth about half when you pay $480 in short term capital gains taxes.
I can’t say it enough: Day trading not investing, it is gambling. Professional gamblers must record their wins and pay taxes on them. Oh, and the House usually wins. Reddit Traders, welcome to Vegas!