If you are trading on the increasingly popular trading platforms like TD Ameritrade, Scwab, Vanguard, and Robinhood, it’s important to know the tax implications on your portfolio—especially when you take gains and more importantly when you take losses.

Just a couple years ago, every time you bought or sold a stock, it would cost you a trading fee. Now you have trading platforms like TD Ameritrade, Schwab, Vanguard and the one that had been in the news a lot, Robinhood, let you buy individual stocks and many even let you buy a portion of a stock at no charge. Because of this more people are investing in individual stocks than ever before. The tax aspects of this is what I want to talk about today.

Capital gains from stocks are taxed at a lower rate right?

  • Yes, assuming the stock is held for longer than a year (or long-term). If it is held for shorter than a year, then it is taxed as ordinary income.
  • Certain dividends are also taxed at lower rates – these qualified dividends are taxed at the same rates as long-term capital gains.

Capital gains from stocks are taxed at a lower rate right?

  • Exactly. Depending on your income, some of the capital gains or qualified dividends might be taxed at zero percent. Those not taxed as 0%, could be taxed at 15%, 20% or just less than 24% for federal.
  • I would talk to your accountant or investments advisor to see what tax rate that you fall in.

These rates can be as low as zero percent?

  • Exactly. Depending on your income, some of the capital gains or qualified dividends might be taxed at zero percent. Those not taxed as 0%, could be taxed at 15%, 20% or just less than 24% for federal.
  • I would talk to your accountant or investments advisor to see what tax rate that you fall in.

Timing can be important here – right?

  • Yes, an investor should be careful of when they take gains and when they take losses.
  • Many people try to sell their losses at the end of the year to save on taxes, but they have to remember that capital losses can only offset capital gains.
  • And once the capital gains are gone, then capital losses can only offset up to $3,000 of ordinary income. Any additional losses are carried over to the next year.

What things should investors be careful of?

  • For those doing day trading, you want to make sure that you understand the wash sale rules.
  • Wash sales are when you sell an asset at a loss and then within 30 days before or after the sale, you buy back the same stock. That loss is not deductible until later.
  • I read an article about a guy who bought and sold the same stock over and over trying to time the market. Well in that case even though he ended up breaking even on paper, he still had a huge tax bill, because he was taxed on his gains, but could not take his losses. Not good.
  • Another surprise people get is when they are buying gold or silver or some other commodity. Many of those gains are taxed at 28% or more. They get special tax rates, but not as low as when you sell publicly traded stocks.

What about investment interest and investment expenses? Those are deductible right?

  • Yes and no. Any investment fees paid to a broker or someone else that handles your money are not tax-deductible anymore. These used to be – but not anymore.
    It still makes sense in many cases to have an investment advisor since a good one will cost you less than they make you.
  • I know that with the stock market continuing to go up – everyone looks like a hero’s right now, but that won’t last forever.
  • But investment interest is deductible – as long as you itemize.
  • Investment interest is when you using the brokerage company’s money to buy stocks.
  • This in my opinion is a dangerous game in many instances.

Please contact us for further information or ask about tax information for investors.

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Jeff Dvorachek
I joined Hawkins Ash CPAs in 1998. I am the partner-in-charge of the Manitowoc, WI, office and tax director for the firm. I have thorough experience providing tax services to individuals, commercial businesses, nonprofit entities and estates and trusts. I also provide compilation and review services. I lead the Tax Committee and am a member of the Information Technology Advisory Committee.

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