Robinhood is a popular brokerage firm that many investors use to buy or sell stocks, cryptocurrency, and more. If you're one of the millions investing using the Robinhood app, you need to understand the tax rules that could apply to you.
It can be complicated to figure out the rules for taxes on Robinhood stocks and other assets because how you are taxed depends on the assets involved. It also depends on other factors, such as how long you own a particular asset.
This guide to taxes on Robinhood stocks and other assets will help you better understand your IRS obligations.
6 Unusual Ways Lazy People Are Boosting Their Bank Account
Stocks are considered a capital asset by the IRS. As a result, if you sell a stock and make money by doing so, you will typically owe capital gains taxes on your profits.
The amount you owe will depend on your basis, which is usually the original price you paid to purchase the stock shares.
For example, if you bought a stock for $1 a share and sold it for $5 a share, your basis would be $1, and you would have $4 in profits you owe taxes on.
The income from a stock sale is taxed differently from income earned at your job. It is subject to capital gains taxes, and there are different tax rates for capital gains taxes depending on whether you have a long-term gain or a short-term gain.
If you own the stock for at least a year and a day before selling, you are subject to long-term capital gains taxes.
Long-term capital gains are taxed at a lower rate than your ordinary income tax rate, which has tax brackets based on your income.
In fact, many people have a 0% capital gains tax rate if their income is below $41,675 as a single tax filer in 2022 or if their income is below $83,350 as a joint tax filer during the same year.
The highest capital gains tax rate is actually 20%, and this applies only to people with an income above $459,750 as a single tax filer, or $517,200 as a married joint filer.
However, if you do not own the stock for over a year, you could be subject to short-term capital gains taxes. These are taxed at your ordinary rate, which can be much higher.
You also have the option to offset capital gains, which means potentially reducing your taxable gains by claiming losses.
For example, if you have $500 in gains and then you sell assets you lost $500 on, you could offset your gains and may not owe tax on any of your profits. Many investors practice tax-loss harvesting, which means strategically timing the sale of losing assets to avoid paying taxes on assets that saw gains.
You cannot, however, sell an investment at a loss to claim the capital loss and then replace it with either the same or a substantially identical investment within 30 days. For example, if you were down $500 on shares of company ABC and sold the shares but then bought them back two days later, you could not write off that investment loss.
If you’re buying a cryptocurrency such as bitcoin through the Robinhood platform, it's important to understand how the taxes will work on it.
Cryptocurrency is treated as a form of digital property and is taxed just as many other capital assets would be. As a result, you will pay either long-term or short-term capital gains taxes if you sell cryptocurrency at a profit.
Whether you are taxed at the reduced long-term rate or at the higher short-term capital gains tax rate will depend on whether you owned the crypto for more than a year or not.
If you convert one cryptocurrency into another, you technically sold the original coins before buying the new ones. As a result, this is considered a sale and you will either be subject to short-term or long-term capital gains crypto taxes based on your length of ownership.
If you sell cryptocurrency at a loss, you may be able to claim a capital loss and deduct the amount lost from any profits that would ordinarily be considered taxable.
Robinhood will send you some tax documents each year to help you report your earnings from your investments. You may receive:
A 1099 form from Robinhood Securities if you had any taxable events related to stocks, mutual funds, ETFs, or options. This could include interest income, dividend payments. sales of stocks, mutual funds, or options, or miscellaneous income.
A Robinhood Crypto 1099 IRS form if you either sold cryptocurrencies or if you received miscellaneous income from Robinhood Crypto over the course of the year.
An amended 1099 form from Robinhood Securities or Robinhood Crypto if any errors were made on your initial forms.
Many of the best brokerage accounts provide online access to tax documents. Robinhood offers this access, and your 1099 will typically be ready to view by the middle of February, so you have plenty of time to provide the information to your tax professional or enter it into any tax software you are using.
It's also possible to upload your 1099 form from Robinhood directly into TurboTax. TurboTax will ask you your bank name. After you enter it, and your account number, you can import a consolidated 1099 form directly from Robinhood.
Taxpayers typically report investment income on their 1040 tax forms, just as any other income would be reported. The specific place where you report your income depends on the type of investment income you have earned. For example:
A capital gains distribution would be reported on Line 7 on Form 1040. In some cases, it would need to be reported on Schedule D, line 13. Schedule D is a separate tax form used to report specific transactions to the IRS, such as the sale of capital assets that aren't otherwise reported on other tax forms.
Gains or losses from the sales of stocks or bonds would be reported on Line 7 on Form 1040. You can calculate gains and losses on Form 8949, Schedule D, which allows you to provide a description of the property, the date acquired and sold, the proceeds, the cost or basis, any adjustments to the gain or loss, and the amount of the gain or loss.
If you received, sold, or disposed of cryptocurrency, you must check Yes to a question asking about cryptocurrency activities on your 1040 form. You can use Form 8949 to determine your gains and losses and report them on Schedule D of Form 1040.
The best tax software makes it easy to report your investment income and calculate any required taxes due. However, working with an accountant or other tax professional could be helpful if you aren't sure of what forms to use or if you have a complicated situation where you sold many investments over the course of the year.
When you sell assets you bought with your Robinhood account at a profit, you will likely be taxed on the money you made. This is true of cryptocurrency, stocks, mutual funds, exchange-traded funds (ETFs), and other assets.
You will need to report the income earned each tax year on your tax form and pay capital gains taxes. If you owned the assets for less than a year before selling, you may be taxed at the short-term capital gains tax rate. This is your ordinary income tax rate.
If you owned the assets for more than a year, you may be taxed at the more favorable long-term capital gains tax rate. This could be as low as 0%.
The amount of taxes you will pay on Robinhood stocks depends on whether you make a profit. You pay taxes only if you sell a stock for more than you paid for it. If you sell a stock for a profit within a year or less of buying it, you are taxed at the short-term capital gains tax rate.
If you owned the stock for longer, the more favorable long-term capital gains tax rate typically applies and is between 0% and 20% depending on income.
If you have made a profit, you could offset the profit and potentially lower your tax bill by selling losing investments and claiming capital losses. This is called tax-loss harvesting.
However, if you sell an asset at a loss and buy the same asset or one that is too similar within 30 days, a rule called the wash sale rule typically prevents you from claiming losses.
You are required to report all income, including profits from the sale of Robinhood stocks, on your tax return. If you fail to report your income, you could face consequences, including tax penalties.
Robinhood reports your investment income to the IRS, so the IRS will find out if you sell stocks for a profit and don't declare the proceeds.
If you are investing money on Robinhood, you need to know how taxes work. If you sell stocks or cryptocurrency at a profit, you should report the proceeds and pay the taxes owed to the IRS.
Robinhood provides tax forms that help, and you should consider talking with a tax professional, such as a CPA, if you don't know the rules for how investments are taxed or what you need to do to fulfill your obligations to the IRS.
You can also learn more about the platform in our Robinhood review.
More from FinanceBuzz:
This article Own Stocks or Cryptocurrency with Robinhood? Here's How You'll be Taxed originally appeared on FinanceBuzz.
Bridgewater’s co–chief investment officer said the U.S. economy could slow down further.
The rate of U.S. inflation reached a 40-year high of 8.6% in May as overall prices for things including rent, gas and food all remain on the rise. “I personally believe that this inflation is here to stay for quite some time,” Orman recently told CNBC, prior to the release of May’s CPI data from the U.S. Bureau of Labor Statistics. The first is a fixed rate when the purchaser buys the bond, and the second is the inflation adjustment rate, which is reset every six months based on inflation.
(Bloomberg) — Former Treasury Secretary Lawrence Summers said the Federal Reserve has failed to account for its mistakes and to realize the damage to its credibility after the latest inflation data dashed hopes that a peak had been reached.Most Read from BloombergUS Lifts Covid-19 Test Requirement for International TravelUS Inflation Quickens to 40-Year High, Pressuring Fed and BidenEating Two Portions of Fish Per Week Linked to Deadly Skin CancerYields Spike to 2008 High, Stocks Sink on Fed Be
For the second time in three years, Tesla will split its stock, lowering its price and increasing the number of shares outstanding.
Markets are volatile. Use these dividend stocks for peace of mind.
Los Angeles Capital CIO Hal Reynolds and Truist Chief Market Strategist Keith Lerner join Yahoo Finance Live to examine market sell-offs amid rising inflation and CPI data, defensive portfolio investing, the Fed's interest rate hike cycles, and spiking oil and gas prices.
(Bloomberg) — When the nineties ended, an overvalued stock market took three long years to rid itself of its accumulated excess in what is now known as the dot-com crash.Most Read from BloombergUS Lifts Covid-19 Test Requirement for International TravelUS Inflation Quickens to 40-Year High, Pressuring Fed and BidenEating Two Portions of Fish Per Week Linked to Deadly Skin CancerYields Spike to 2008 High, Stocks Sink on Fed Bets: Markets WrapSony PlayStation’s New God of War Video Game Planned f
Inflation remains white-hot. These stocks can help stop the pain.
Electric vehicle maker says it wants to go forward with plans for another stock split, but there's something that has to happen first.
The Facebook parent’s lawyers have been investigating outgoing COO Sheryl Sandberg’s use of corporate resources for personal projects going back several years, people familiar with the matter say.
In a key win for the embattled biotech, bluebird bio Inc. has scored two endorsements in as many days from an advisory committee to the U.S. Food and Drug Administration.
U.S. stocks sank Friday as investors digested two downbeat prints on the U.S. economy.
Be greedy (but selective) when others are fearful.
LOS ANGELES (Reuters) -U.S. President Joe Biden on Friday accused the U.S. oil industry, and Exxon Mobil Corp in particular, of capitalizing on a supply shortage to fatten profits after a report showed inflation surging to a new 40-year record. U.S. consumer inflation accelerated in May https://www.reuters.com/markets/us/soaring-gasoline-food-prices-boost-us-consumer-inflation-may-2022-06-10 as gasoline prices hit a record high and the cost of food soared, leading to the largest annual increase in four decades. Biden, who came into office vowing to reduce U.S. dependence on fossil fuels, said on Friday he was hoping to speed up oil production, which is expected to hit record highs in the United States next year.
The ride-hailing company’s ill-fated debut helped turn it into a poster child for China’s tech crackdown.
Shares of several major bank stocks took a hit today after new data showed that inflation is still surging and may not have peaked yet. The Dow Jones Industrial Average had lost more than 650 points as of this writing while the Nasdaq Composite was down close to 3%. Shares of Citigroup (NYSE: C) traded 4.3% lower as of 2:25 p.m. ET today, shares of JPMorgan Chase (NYSE: JPM) were 4.2% lower, and shares of Goldman Sachs (NYSE: GS) were down 4.8%.
While Apple, Nvidia, Microsoft and GOOGL stock have gone MIA, the best mutual funds bet big on medical, defense and oil stocks.
Amazon's (NASDAQ: AMZN) stock split has taken effect, and it is now trading on an adjusted basis. Let's take a closer look at why Amazon's more profitable segments and a relatively inexpensive valuation should be the basis for your investment decisions on this stock. Amazon's 20-for-1 stock split does not change your share of the ownership pie.
Worried about inflation? You should be — especially if you own the wrong assets and bet against S&P 500 and growth stocks.
Friday’s consumer-price index report for May — which showed the annual headline U.S. inflation rate climbing to 8.6% in May, with few signs of having peaked — is boosting the chances of a jumbo-sized rate increase by monetary-policy makers as soon as next week, and eliciting dire warnings that central bankers have completely lost control of prices. Fed funds futures traders now see a 21% chance of a 75-basis-point hike in June, up from just 3.6% on Thursday, according to the CME FedWatch Tool. Beneath the issue of where the Fed goes from here is a much more fundamental and serious problem: Some observers fear the U.S. central bank has already effectively lost control of inflation.