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DAY TRADING TAXES! EXPLAINED!

day trading taxes everybody wants to

know how to make money but not a lot of

people know how taxes work when it comes

down to day trading we're gonna talk

about day trading taxes in this video so

make sure you guys stay tuned what's

going on guys so today we're talking

about day trading taxes and I want to

make it very clear that I am NOT a

professional tax person by any means so

whatever I say in this video take it

with a grain of salt until you go out

and you talk to a professional if you

have real questions and you're wondering

about your personal taxes please please

go out there and find a professional who

is actually certified and knows what

they're talking about but let's just

talk about day trading taxes and how it

works so basically the way that the IRS

looks at taxable income when being a day

trader is that as a day trader the money

that you're making is like you're

self-employed so you're like a 1099

contractor in the sense that you don't

really have a boss you're not really

paying in social security you're not

paying this stuff but you're making

income there's income coming into your

account right so you're making money as

a day trader so you got to pay taxes on

that so let's talk about how that works

first off if you are a trader a normal

just trader slash investor and you make

a lot of trades the maximum amount of

money that you're allowed to deduct for

your losses is only three thousand

dollars so if you lose ten thousand

dollars in the first year of your

trading journey you're only allowed to

deduct three thousand dollars per year

as net capital losses so that's

something to think about if you're

losing a lot of money and you're

planning on writing that loss off at the

end of the year you can only write off

three thousand dollars maximum as a loss

okay remember that think about that now

another good thing is

you are allowed to deduct things like

margin account interest you're allowed

to write off your computer your internet

all the stuff that comes with being a

day trader because remember you're a

self-employed person as a day trader so

you're self-employed and you're allowed

to write off a lot of the expenses that

come with being a self-employed day

trader like I said computer your

internet whatever you're basically using

to make money your maybe your office

things like that

depending on how your house or your

office or however that's set up remember

talk to a professional before you go and

do these things but like I said you're

allowed to write off a lot of the

expenses that come with being a day

trader now a lot of people talk about

mark-to-market traders if you qualify as

a trader the IRS has a deal for you

under normal circumstances when you sell

a stock for a loss you get to write off

that amount but if you buy within 30

days before or after you sell the IRS

considers this a wash sale now you have

a tax accounting nightmare to handle

with at that point fortunately you can

become what is called a mark to market

trader meaning that you will

automatically become exempt from the

wash sale rule now here's how

mark-to-market works on the last trading

day of the year you pretend to sell all

of your holdings if any even though you

still really hold the stocks you book

all the imaginary gains and losses of

that day for tax purposes you then begin

the new year with no unrealized gains or

losses as if you had just bought back

all the shares you pretended to sell

being a mark to market trader has no

other advantage being a mark to market

trader has another advantage normally

investors like I said earlier or traders

can only deduct three thousand dollars

in net capital losses per year but a

mark to market trader can deduct a

unlimited amount

losses which is a plus in a really awful

market or a really bad year of trading

as a mark to market trader you should be

you are allowed to report your gains and

losses on your part to of IRS form forty

seven ninety seven so that's an option

again I would talk to a certified

professional accountant and learn more

about that I think it would be a really

kind of good way to do it and learn if

you can qualify for the mark-to-market

exemption so you don't to worry about

the wash sale rule and remember there's

a lot of paperwork and a lot of issues

but let's talk about like how does it

actually work you know what's the deal

with being taxed all right so let's look

at like this so basically your long term

your short term investor long term

investments those are held for more than

a year and are taxed so let's look at it

like this you have long term investments

in short term investments when it comes

to trading or investing let's look at it

like this long term investments are

those investments you hold for more than

a year and then short term investments

are less than a year and the longer term

when you hold a stock for more than a

year that is a long term investment and

it qualifies as a long term tax rate in

terms of having it for longer verse the

regular tax rate so let's say you make

over $500,000 a year with long term

investments those are stocks you hold

for over a year your tax rate is going

to be 20% now if you're making money in

the short term and you're buying and

selling stocks every single day you're

not holding long term that tax rate for

over 500 thousand dollars a year is

gonna be thirty nine point six percent

again make sure you check with a

certified professional accountant before

using all this but just for example

let's say you make you know nine

thousand to thirty seven thousand

dollars a year your tax rates gonna be

fifteen percent of that profit paying to

IRS now if you make ninety thousand to

one hundred and ninety thousand dollars

that tax rates gonna be fifteen percent

for a long term tax rate and for a

regular short term tax rate you're

paying twenty eight percent again we

already talked about capital loss

if you're trading with a normal investor

profile you can only write-off $3,000 in

taxes per year all right so you might

have heard about people trading in a ra

account how does that work and why would

you do that the reason that people day

trade in a IRA account is because it

allows you to defer or avoid taxes on

dividends and capital gains all of your

profits can be reinvested tax-free and

some of the restrictions about using an

IRA account is that there's rules with

the IRS which means you're not allowed

borrowing from an IRA account

this means no short selling and leverage

using margin in the sale of naked or

naked put or call options some brokerage

firms allow you to trade different ETFs

and vice versa

based on how much money you're making

from maybe your nine-to-five job or if

you have other money that you're making

your taxable income is basically just

gonna be absorbed into that and then add

it up at the end of the year and it's

gonna adjust with your tax rate and vice

versa so it's basically like having a

second job and being a self-employed

contractor for that job so imagine the

stock market is like a business that

pays you and you're a 1099 contractor

you're taking that income in and then

you're paying those taxes at the end of

the year based on how much money you

make so if you make a ton of money

obviously you're gonna be paying a lot

in taxes if you make no money at all

don't worry about it you're not gonna be

paying a lot of taxes on that so it's

very kind of vice-versa and depending on

how you're trading

and learning about all that as well so

make sure you spend more time kind of

talking to a professional if you're

making a lot of money you should

definitely talk to professional if

you're just starting out just keep in

mind how it works and kind of learn more

about that overall process and also

maybe learn more about if you are able

to qualify for the mark-to-market

exemption with the IRS you don't have to

pay the wash sale rule so a lot of

things to learn about I've heard about

people having nightmares before where

they end up making it

money training and then at the end of

the year they end up owing a lot of

money because they had a lot of wash

sales and they had a lot of stuff going

on so you need to understand how that

works and again like I said if you're a

normal trader and you're not qualified

for the mark-to-market exemption then

you will only be able to write off 3000

dollars in net losses for that year I

believe that you can kind of move their

losses on for the next couple years

again not a professional by any means

but that's basically what I've been told

I have an accountant that handles most

of my stuff so I'm not worried about it

but if you guys are really wanting to

learn more like I said talk to a

certified tax professional and you guys

will be able to learn more then so there

it is taxes day trading the stock market

investing they're all things that you

need to learn not just about trading but

you got to learn about taxes when it

comes down to the bigger picture here at

the end of the year the last thing you

want to do is be like oh my gosh I've

got a problem so you guys haven't ready

do me one more favor you want to learn

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