How taxes work in your taxable trading accounts❓ | The Dough Show


the coolest intros ever man I love that

thing gets me fired up every day I'm

Dustin Tim it's financial advisor with

Jazze wealth welcome to the DOS show

everybody today is Friday and we've got

a special video to help you get your

dough straight today I think this is

going to apply to a lot of people

although I'm only really talking to you

know who so uh here's the deal a lot of

people come to us and I open retirement

accounts right and so great that's what

we do that's our business model that's

what we hope you'll check us out for and

maybe consider us for if you need help

if you're just not getting where you

want to be with your retirement accounts

or not sure how it all works that's what

we're here for

we work with investors of all sizes no

limitations no strings attached you can

see everything you like to see on jazz

wealth calm and of course we have any

questions let us know here's the thing

in retirement accounts the tax benefit

and tax consequences are known upfront

meaning in a Roth IRA you can open an

account and you can start buying and

selling as much as you'd like with

really no tax consequence so if you buy

something on one day and five days later

you does decide to sell it the IRS

doesn't care they've agreed that you

will no longer pay tax on any money that

whether it grows or whether you put

money in there whatever it happens to be

they agree that you won't pay tax on it

in an IRA of course you put the money in

and you're saying I'll pay the tax later

let it grow and grow and grow and grow

and as I start taking money out little

by little in retirement I will give the

government their fair share right so no

big deal here's what's happened though

back in the day in my day it used to be

that if you wanted to trade if

just wanted to buy and sell with no

retirement vision you could just open an

account at TD Ameritrade or TradeStation

was a popular one light speed was a

popular one for day traders I go back to

the days of Zico right where they used

to be big so here's the Scottrade even

what you could do with those accounts is

those companies would say hey put

whatever you want in you put five

thousand dollars in and you want to buy

and sell stocks you know each and every

day or every couple days or whatever

they didn't care they charge you a small

commission for doing so and you could

just trade away well nowadays people

like to use Robin Hood Robin Hood's

quite popular actually and some I'll

give you a little industry background

here two months ago Robin Hood opened 1

million accounts in one month now when

you dig a little bit deeper most of

those accounts had a couple hundred

dollars in them so they weren't large

accounts now that's not bad I won't say

anything bad about Robin Hood great

service if you want to go ahead and try

to use it but the problem is people will

forgo almost everything in it as far as

advantages go if you tell them it's free

and so a lot of people go there because

they say it's free now you can pay them

for different things but they it's free

so people will go and open accounts now

a lot of people go a home and they

opened a million accounts but nobody put

in any real money and that's ok their

vision is for the smaller person as well

I believe well they didn't raise they

didn't have as much money as they hope

would come in so they had to raise money

and they raised a ton of money by the

way which you know if anybody happens to

know how they raised their money let me

know I would love to raise money for

this company if you happen to know a VC

firm or any sort of angel investors I'm

in I'm willing to work with him nobody

wants to talk with me but these guys had

to raise a lot of money what I read into

that was not that the business maybe is

struggling for money or that they're

growing at a pace they can't keep up

with who cares they'll deal with it

they're smart people they're what I read

into it was oh my god these people that

just open their accounts all opened

taxable accounts and may be shocked at

the end of the year when they know like

what they might have to pay now on the

other side of that people at jazz wealth

will open retire

counts and they go Dustin hey it's

halfway through the year I put in the

max amount

I can't invest anymore in my Roth IRA

but I do want to invest what do I do and

so I always tell them well it may be

best that we open an individual account

maybe a joint account with your wife or

your spouse or what we call a taxable

account they're all the same thing now

this account has different rules now in

an individual account like at Robin Hood

or if you open one here you can do

whatever you like you can buy and sell

as much as you like nobody cares you

could put as much money in as you like

you could take as much money out as you

like nobody cares but the IRS says hey

wait a minute

we just want our money if you make some

money we want our money and they break

the rules down sort of complex but we're

gonna go over them today so there's a

few things I want you to consider no

matter where you go no matter what you

do if you have an account at TD

Ameritrade if you're day trading buying

and selling if you are at Robin Hood

wherever you might be or you here at

jazz wealth and you're considering

adding an individual account we do need

to talk about some things I'm always

gonna stop customers from doing

something that costs them more in the

long run it'd be easy for me to say

sure open a taxable account put 50

million dollars in there and we'll just

go ahead and we'll manage it for you and

then you find out you've got this tax

bill you'd be pissed right so I'm always

gonna try to stop people from paying any

more than they absolutely have to pay

the IRS here we go so we're gonna start

with long term capital gains in a

taxable account here's how it works

let's say you bought something and a

couple days later you sold it well if

you made a profit on that you are

falling either into short-term or

long-term capital gains here's the deal

we touched on this a little bit

yesterday long-term capital gains are if

you hold the position for one year and

one day so if you bought a stock and you

let's say you bought it today and one

year and one day from now you sold it

for a gain of hopefully a lot right

$1,000 $5,000 whatever it may be the IRS

says okay you fall into this bucket we

want our long

capital gains from you what is long-term

capital gains we'll go over that in a

second but it is either zero percent tax

or 15 percent tax

oops you get what I'm trying to write

there so that would be what you would

owe either zero nothing hopefully

nothing or 15% we'll talk about how you

calculate that in just a second now if

you bought a stock today over the

weekend you're at a BBQ the guy that's

cooking up in a barbecue goes hey turns

out there's a better stock for you to

buy you get all excited you want to buy

that stock instead you come in on Monday

you sell the stock and go buy that hot

tip that the guy gave you well that

counts as short-term capital gains which

really is just ordinary income right and

that's just a fancy way of saying you're

going to add whatever the profit was to

your tax bill so whatever your taxable

your tax bracket is is what you're going

to owe so actually let me erase the wash

sale thing here for just a second and

let's talk about this so long-term

capital gains here's how this works I'm

going to only do married filing joint

today right married filing joint most of

you married filing joint if you're

single you just look it up it's it's not

so bad now if it's a long-term capital

gain you're only well your two choices

for most of you are 0 and 15% it is 0%

if your taxable income I should say if

you're married taxable income is seventy

seven thousand two hundred

think about it you and your spouse make

money hopefully you make a lot more than

that but if you guys together are

getting started and together you make

seventy seven thousand two hundred

dollars or less then your long-term

capital gains is zero you don't know


the government says fine you you keep it

it's all up to you right you would owe

15% basically for everything over that I

wrote the number down somewhere

479 thousand so for most of us we're not

going to go over that as long as you

stay under 479 the UO 15% in long-term

capital gains now in the past prior to

this year

you'd go okay great I'll hold that stock

for the year in one day I'm a long-term

investor that's fine because if you sold

it prior to that your tax may have been

higher I mean it was higher right

because of the tax rates a little

different story this year because tax

rates are lower so let's talk about this

for a second what I'm gonna do is now

change this to short-term capital gains

let's say you bought a stock you sold it

three months later okay now we're

counting this as ordinary income again

we're gonna assume you're married filing

joint the only thing that changes

where's the eraser oh the only thing

that changes is a number right here

right 400 let's get rid of this all

right okay if you're married filing

joint and your income is less than

seventy seven thousand four hundred

you're gonna pay twelve percent you're

in the twelve percent tax bracket right

it might make sense for you to actually

sell sooner than you'd hope for be if

you fall into the fifteen percent

category right so a little bit I mean

it's three percent big deal right but

it's a little different now because the

tax rates are lower so in short term

capital gains if your income is seventy

seven thousand four hundred dollars or

less you're going to pay twelve percent

on that game and then you know what it

does it goes to 20 to 24 and 32 you get

it right so if in a taxable account you

buy a stock you sell it a day later it

counts as ordinary income whatever the

gains were not the value of what you

purchased but whatever the gains were so

keep that in mind so if you made $1,000

you're gonna add it to your income and

if you're in this tax bracket is 12

percent so what you're gonna pay if you

made $1,000 and you're in this tax

bracket it's 22 percent for buying and

selling just counts as income you guys

with me you get it everybody cool all


so that's that now you know that in a

taxable account whether it's at Robin

Hood whether it's with us wherever

you're at your day trading you really

want to keep that in mind that

short-term capital gains especially if

you're making a lot day trading if

you're making a lot by investing at

Robin Hood or wherever you're at you

want to keep that in mind right now

some of you might look at this and go

hmm I've got an idea

right let's play some games with the IRS

what if I have I don't know ten

positions all these positions and some

of them are quite profitable some are

negative alright some are really

negative and some are really profitable

okay and you go well look according to

the IRS as of now still you can write

off three thousand dollars worth of

losses a year okay so let's think about

this if you have a position let's say

this one here is down three thousand

dollars right and you go well we're

gonna get to the end of the year what if

I sell that position I'll keep

everything else but what if I sell that

position to lock in three thousand

dollars worth of losses and then the

very next day I'll just buy it back

right well that's kind of clever because

if you sold this for a three thousand

dollar loss you would have three

thousand dollars in capital losses that

you could put on your tax return and

then when you you know at the you know

very next day or whatever you might say

let me buy the stock back I'll get right

back into the position but the books

will show a three thousand dollar loss

okay there's something called the wash

sale rule the IRS is so ahead of you

guys on this one they're not messing

around so here's how this works the wash

sale rule says if you were to play that

game right let's just do an example if

you bought 100 shares 100 shares of I'm

not gonna pick a stock I'll go X Y

okay so let's say you bought that a

hundred shares of XYZ for $100 a share

okay you have spent $10,000 to buy that


it doesn't matter whenever you bought it

you bought it right now let's say today

about it ten thousand dollars come the

end of the year the value of it is worth

seven thousand so you're like holy cow

I got a loss on this one I'm losing

three thousand dollars but it's okay

because I can write off the three

thousand dollars in taxes that's great

that's like you know that'll help you

with the rest of your income so you go

alright let me do that but I'll tell you

what just so I can lock it in I'm gonna

buy it back the next day I do like the

stock I do want to keep it everything is

cool so let's say you buy it back

shortly thereafter okay that triggers

what's called a wash sale so you bought

a hundred shares I had a hundred dollars

you sold them for seven thousand dollars

you took the loss right then you turn

right back around and you bought the

shares about a hundred shares at now

I'll be trading it's a seventy right and

so now you're putting the seven thousand

back to work right that's a wash sale

you're not allowed to do that so you

can't do it now here's the key though so

what you can do and hopefully I don't

confuse anyway let me know I got the

little chat thing open if I confuse you

what you can do is count that three

thousand dollar loss towards your cost

basis okay so we're gonna get a little

geeky here for a second this is the

process you bought in for ten thousand

you lost three right so you took that

loss then you turned around and you

bought it back you didn't know the wash

sale rule existed you thought you were

being slick and getting one over on the

IRS so you bought the shares back at

seven seventy dollars so you've got

seven thousand back in to this right

since you still have the three thousand

dollar loss no you can't take it off on

your taxes it's not going to be allowed

it's called a wash sale rule but what

you can do is say I've got a $3,000 loss

and your new cost basis for this stock


actually going to be 100 right for

$10,000 you with me so don't don't run

so now your cost basis is 100 you paid

70 for it the IRS is not gonna let you

take that loss on your taxes but they

are going to let you carry it forward oh

that's a bad word I didn't say that they

are going to let you add it to your cost

basis so what that means is although you

bought back 470 you don't pay any tax on

this trade unless you make over a

hundred okay so let's draw it out like

this you bought at $100 right so let's

say stock price is trading at $100 you

bought it today five days from now

unfortunately is trading at 70 okay and

you say that's cool I'm gonna take a

loss okay you can't write it off on your

taxes if you then turn around and buy it

back at 70 so wash sale because you

bought the same stock and the way they

actually say it is a wash sale is if you

buy a substantially identical position

so it doesn't have to necessarily mean

that you bought the same exact stock

right it could be that you bought

preferred shares it could be that you

bought an option on the stock instead

all that counts it still be a wash sale

you buy back at 70 okay so now you're

back in you get no tax loss however this

from here to here there is no tax

although you'd have a gain to start

offsetting some of your loss you

wouldn't know any tax until you crossed

the hundred dollar mark here with me

okay so in short what this means is in

an individual account buy and sell all

you want but realize all those gains

versus losses start offsetting against

each other and if they happen to be on

substantially identical products they

get discounted 100% you can't even use

it on your tax return so for example if

you had all you had a fruit the end of

the year you had say $100 gain $100 gain

$50 gain and then you had

twenty-five dollar loss $100 loss and a

25 dollar loss right these all go

against each other right so you've got

two hundred and fifty dollars worth of

games this hundred and fifty worth of

losses comes off of this so your actual

net gain at the end of the year is only

a hundred dollars right unless one of

these is a wash sale okay so let's say

you had a hundred dollar gain on this

stock right here right you sold it and

you turn around and you bought it and

started losing a hundred dollars done

okay if you had a 25 dollar loss over

here and you sold it bought it back had

a fifty dollar gain you don't get to

count that 25 dollar loss right you

gotta count this as 25 okay

so there's a lot of things you want to

keep in mind when you do this sort of

individual tax game here now what we do

is we built an algorithm that sort of

works in the background and what it does

is it says all right Dustin you've got a

you've got a customer here that's got an

individual account and they've got all

these positions right let's say it's

from here to here and these are the

losses and this is the games okay and so

they've got all these positions and

gains and they've got some of these

positions and losses and this is what it

looks like for us on our end and so it

says Dustin this may be stock XYZ this

may be a portion of stock why why why

why you get what I'm doing here right

and then the games Dustin this might be

stock X X Y Z it could be something else

right something else and so what it does

is it starts to tell us Dustin this is

what's happening the client wants to

take out so much money but they don't

want to pay any tax on it how can we

best do it and so the algorithm tells us

we've got it set up where it says sell

off this position totally sell off half

of this position right sell off all of

this position and sell off one quarter

or let's say half of that position and

the net taxable event is $0 so if you've

got a taxable account you've had it with

us for a year and you've got about

$10,000 in it you go Dustin something

happen got to take out a thousand

no problem there's no tax penalty

because it's not an IRA

there's no taxes due if we do our job

and what we do is we go in and we say

okay the client wants a thousand dollars

they've got ten thousand dollars in this

account how can we close some of these

positions to avoid any wash sale in the

future but also to make sure that they

get that thousand dollars tax-free so

that's sort of a geeky way to explain it

now the wash sale rule is thirty days

before and 30 days after the trade okay

so you can't go buy a stock that's a and

then see it lose money sell it turn

around and buy the stock okay you got to

wait until that expands now how can you

sort of trick the system if you're still

following me and this hasn't scared you

away how can you trick the system well

the rule is it has to be substantially

identical right it's a wash sale rule if

it's substantially identical so I'm

gonna use an example of Amazon today

this is a popular one everybody wants to

buy Amazon you know yeah I get it it's

all exciting and everything so if for

some reason you sold Amazon and you had

a $3,000 loss you can't buy it back for

30 plus days without triggering a

was--she a wash sale rule but what you

could do is you could go to Excel why

this is actually an ETF xly is about 25%

made up of Amazon so you could

theoretically it's not it's not perfect

but you could theoretically sell your

Amazon for a $3,000 loss and go Dustin I

just wanted to lock in the loss I still

want to participate in Amazon I like

tech you could say find an

exchange-traded fund that was heavily

weighted towards your Amazon and

technically you could go buy that hold

it for 30 days then close that position

and jump back into your Amazon you would

technically still be participating in

Amazon but the IRS wouldn't know right

so you could sort of sneak around that

an old game we used to play with the

short-term traders that we used to do

now since that's 25% Amazon you may want

to do some math there

sure that you're participating in Amazon

the way that you like to that's not

really what this class is about but you

could play that game though okay so the

important thing to know is if you do

trigger a wash sale what happens is when

you get your reporting at the end of the

year to show all the trades that you did

they'll be it'll just say wash sale next

to anything that doesn't count and it's

up to you to verify that and make sure

those are all accurate

then what happens if you can't write off

that $3,000 you do get to apply it

towards your next purchase so it's it's

sort of a gift in a way if you want to

think of it that way okay so in short I

want you to know taxable accounts no

rules do whatever you want there's

theoretically there's no specific rule

about what you can do with the taxable

account as far as putting money in

taking money out how much you can put in

how much you can take out when you can

put it in when you can take it out the

problem comes when you start buying and

selling stocks when those transactions

happen that's where the problem starts

to come in if it's over a year in a day

then you either pay 0% now you know what

the number is or you pay 15% and you

know what the number is you actually

could pay as high as 22% if you made

over the 479 but I rarely encounter that

okay then the other thing is short-term

capital gains if you hold it for less

than a year and a day and a short-term

capital gains count as ordinary income

now if you're really picky about how

much you pay in taxes this may be the

year where you could do something

different there and possibly pay 12

percent on your ordinary income tax

short-term capital gains tax depending

on how much you made okay I'm not a tax

guy so please don't ask me the tax

questions just giving you what I know

from the numbers there okay and then the

wash sale rule just means there's no

game that you can play to trick the IRS

so in short if you don't know what the

wash sale world was I just scared the

hell out of you with that know that

they're on to your games right they're

not falling for it you can't trick the

system is basically what we want to say

okay that's all I had for you today as

far as that goes now many people do open

these accounts because they filled up

their IRAs and that's understandable but

I want to explain how it all works

because I want you to be happy at the

end of the

if you're working with us I don't want

you to be shocked and if you're watching

and you're one of our subscribers I

don't want you to be shocked if you're

buying and selling left and right on

your Robinhood account or you're a day

trader you need to you're gonna spend

probably the Christmas break to New

Year's break trying to make sure you're

doing the right thing there and every

year that's what I would do just to make

sure it was done right Michelle's back

how you doing Michelle you want to have

me do a video on comparing renting

versus buying which is better based on

income rate inflation is it better to

rent versus buy a house okay that's an

idea that has to do with your dough I

have a lot I could offer there I like it

and he's got to go back to work can you

take a three thousand dollar capital

loss against ordinary income or doesn't

have to offset against the capital gain

that all the trends I think you probably

asked that before I got to it but your

capital gains and capital losses offset

each other provided that they're not

washed sales what if you so SP why and

buy vo does account as to similar as of

now it does not count as two similar

believe it or not doesn't key touch on

first-in first-out of different

purchases of the same stock that is so

what he's talking about there is if you

buy Amazon at one price then you buy it

at another price five days later then

you buy it at another price five days

later and another price five days later

how does the system factor in which when

you go to sell shares how does it know

which one you're selling right if you

bought at different prices how does it

know which one you're selling thank the

good Lord or whatever sort of religion

you you know subscribe to that that is

mostly automated these days so you don't

have to deal with it

it is first-in first-out and thankfully

the systems do it for you could you go

through and do it automatically yourself

and at the end of the year by the way

Punk can you go back at the end of the

year and readjust right you have the

opportunity to do that you can go to

your brokerage firm and say I see what

you guys did there I need to make an

adjustment they will do that for you by

the way so if you're willing to take

that extra step you can do it

so you're playing the different

brokerage account game unfortunately the

tax forms all go into one tax return so

the IRS still finds out de CDs and

high-yield savings accounts also count

well you're not doing any trading in

those accounts today we're talking about

buying and selling stocks inside of an

account CDs are their own product and

high-yield savings accounts are their

own that pay out dividends and yes those

dividends are reportable you are you

going to be taxed on those dividends it

depends on how much you collected from

the high interest savings accounts so

sort of general but I hope that helps

yeah all right guys hey enjoy it if I

helped you in any way hit the subscribe

button turn the bell on so you know when

we come back later today if I confused

you I understand I get it yeah I

probably should save this for a Monday

when we're all fresh and ready to go but

I did it today all right have a great

weekend guys we'll see you later for the

closing beat what an interesting market

day well your interesting couple days in

the market by the way if you've been

following along we will cover all of

that today at 5 p.m. for the closing

beat why should you choose jazz wealth

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