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.
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How do taxes work on Robinhood stocks?
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.
How do taxes work on Robinhood cryptocurrency?
If you’re buying a cryptocurrency such as bitcoin through the …….
Source: https://finance.yahoo.com/news/own-stocks-cryptocurrency-robinhood-heres-223100489.html