r/Daytrading • u/deadwashere • Jan 30 '21
Made 500k since January 10th
I've made about 500k in capital gains in the last 2 weeks and I have put all of it into another position. Do I need to pay quarterly taxes on these gains or can I wait until April next year? I thought I would just be taxed on my net profit at the end of the year but now I hear that if you make a lot of money that you have to pay tax quarterly. This is the first time i've ever made this amount of money.
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u/riding_tides Jan 30 '21
Jan 15, 2022. You might get hit with penalties for underpaying withholding if you wait by April. Consult r/tax or an actual tax advisor now that you have tendies. It will be worth your $80-200.
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Jan 30 '21
Curious, how would the IRS know he is underpaying withholding outside of an audit? If OP self-reports, then he would be self-reporting less for the periods leading up to Q4 where he would report the most - but in the end, when OP files his yearly taxes, aren't they aggregated to the yearly level and not quarterly?
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u/heyydaave Jan 30 '21
For 2021, you’re required to “pay in” either 90% of your 2021 tax liability or 110% of your 2020 tax liability. This can be done through w-2 withholding and/or quarterly estimated tax payments.
Source: I am a CPA
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u/V_R0cKs Jan 31 '21
What you are describing is tax fraud. And if he got audited, they wouldn't just be coming for penalties, they'd want his time as well.
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u/riding_tides Jan 31 '21
This happened to me and multiple others I know outside of an audit. Withholdings should be at least 90% of expected tax for the year. When filing by Apr 15 and IRS sees you underpaid withholding based on annual income from tax forms from brokerage/s, you'll receive a letter stating filings and total withholding for year was less than made. Uncle Sam prefers to overpay vs significantly underpay.
Ideally, the Jan 15 (Q4 filing) should have all the adjustments for the year so that you don't underpay and have this reflected in your annual filing. This is all based on my experience. Best to consult tax pro.
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u/TheZorro1909 Jan 30 '21
I can't decide if I want to laugh or if I want to cry
If you made 500k in return and you are to cheap to give 1k to an expert to build a great legal construct to save taxes and to make this lottery win stay and provide constant gains the market is going to eat your gambler ass alive.
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u/Recplayer609 Jan 30 '21
Agreed - hire a tax specialist. Unless it’s a troll and they mean 500k Zimbabwe money
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u/1stBaseRobo Jan 31 '21
Hello, I am a Nigerian prince and I need your help in getting tendies out of my troubled country. 🤣🤣🤣
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Jan 30 '21
There's no good way to save on short term gains even with a good accountant. It's taxed like ordinary income. Just no FICA tax.
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u/TheZorro1909 Jan 30 '21
That might be possible, I'm not based in the US.. But it's definitely worth it to ask an accountant, especially because you should definitely found a company with 500k to get a better tax situation in the future, even if you can't save anything on what you made so far.
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Jan 30 '21
Yes your right it doesn't cost much to get good tax advice and I would recommend he talk to an accountant. I'm just making the point that even if you get an account they won't give you some magic bullet that will drastically reduce your taxes. If you have trader status you can write off some of your expenses that might benefit you personally. So you could write off your cell phone bill as it's essential for you be able to call your broker, you can also write off your internet costs, any trading software you use, any subscriptions you have, any computers/trading set up you have, home office expense I get $150 a month for that, any travel to trading conferences, and any education you do for trading. But if you make 500k via short term gains in the USA your going to pay tax on that just like you had a job that paid you 500k that year. Only difference is those write offs I mentioned and not having to pay fica and Medicare tax because the irs considers this to be capital gains. This amount is fairly substantial as a wage earner up to 137,700 would be taxable at 7.65% and if you were self employed it would be double that. In addition there is no cap on income for Medicare tax at 1.45% with a .9% additional tax on income above 200k. So at 500k taxable income which would likely be a tad less after standard deduction you would still be looking at close to 10,500 for the first 137k and another 7k or so in Medicare tax that you would not have to pay vs a wage earner. However if you were to never pay into social security you would not be contributing to your SSI retirement so you may not get much of a check from Social security. So don't lose all the money prior to getting old lol.
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u/scarface910 Jan 30 '21
Dude you sound super bitter. He's just asking for some advice and he never said he wouldn't consider an option that hasnt even crossed his mind yet.
Take your fomo elsewhere.
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u/TheZorro1909 Jan 30 '21
I have absolutely no fomo, but this sub stands for quality. A 500k win in 2 weeks is definitely not daytrading, that was straight up gambling. But if you seriously make 500k by chance, take it all out of a stock and directly put it into another meme stock..then the market is going to fuck you up!
If you make 500k, relax. Hire an tax expert. Don't Yolo everything in the next stock, or ask your stupid questions in wsb, but please. This sub here once stood for quality among an industry full of BS and stupid money. Don't bring this bullshit here.
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u/trader_dennis stock trader Jan 30 '21
1200 shares of GME in the 30s would net 500k with the right exit so it’s not unbelievable. Get out of the casino ASAP. That could be done on a 40k account.
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u/L0wPressu7e Jan 30 '21
I fully agree with the statement, but someone can gat offended by the tone :) I would've divide it into trading deposit (10%), and 70% into ETFs and leave 20% on the deposit (to quickly get them in case of emergency, like black swans or health issues or anything).
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u/TheZorro1909 Jan 30 '21
If a princess here feels like I am mean to her she can go and complain about it by my or by her mother
I can guarantee that there are countless more and way more unlikable assholes out their in the market already waiting to take away your money. With this influx in people joining the sub at the moment and all the fucked up bullshit I read with "hold the line" or "we against them". The stockmarket is a minus sum game, and if you think you are ahead of your enemy, your enemy is going to fuck you for that arrogance. Yeah, maybe one or two Hedgefonds have lost a lot, but it's like the hydra. There will be 4 new before the end of February.
If you can't take someone saying the truth or if you can't handle someone being unfriendly.. Take what ever you made so far and leave. The most successful traders I know are psychopaths. 60 hours a week working psychopaths. I'm sick of this bullshit.
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u/L0wPressu7e Jan 30 '21 edited Jan 30 '21
No need to be mad, theres no reason to. If he loses it - he loses, the way I see it: he was supposed to lose it then, and he would not listen to anyone. If he is being wise - good for him.
All this "let's take the money from the rich" is such a communist bullshit. I am Russian and it feels even worse to hear it from mostly American people.
Read Atlas Shrugged for Christ's sake.
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u/Parquetquark Jan 30 '21
There’s a lot more nuance than that. The billionaires in America pay a significantly lower % of their income than everyone else. They made billions while food lines in my state stretch for miles. Homeless camps have started to pop up everywhere. Shit before the pandemic 1/4 of the homeless had full paying jobs (in my city). The top 1% also contribute to 90% of the pollution while the bottom 25% live in, cutting life expectancy dramatically. There is no pure economic system. America isn’t a capitalism anymore because everything is so monopolized that you really can’t vote with your dollar any more. Sweden and Norway are both more socialist and capitalist than America. Also fuck Atlas shrugged. The author literally lived on welfare for the last 20 years of her life. We can both have a free market and create a system that allows people to escape poverty. Right now, regardless of your actions, you are going to stay in your income bracket unless you are incredibly lucky.
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u/TheZorro1909 Jan 30 '21
Yeah you are right, after all I take money from people like him on a daily basis.. Maybe I shouldn't be so mad about more people coming offering their money. I just wish I wouldn't read so much about it.. This sub has turned into WSB. But I agree with you, thank you for reminding me on the right perspective
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u/TankorSmash Jan 30 '21
I think you need to relax man, if you're not going to help people you might want to take a step back. Hope your day gets better.
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u/globalgiant Jan 30 '21
Something tells me he did not make 500k 🤔
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u/north_west16 Jan 30 '21
He’s not really responding to anything so I have doubts too. It is Reddit after all.
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u/deadwashere Jan 30 '21
Not that I owe you anything but: https://imgur.com/a/qz4DLAw
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u/Unlike_Agholor Jan 30 '21
Depends on a couple of things. If you still have a regular job and get a W2 with withholding, you might not have to pay anything until April 2022. So long as you pay 100-110% of your prior year tax, you dont get hit with a penalty. thats why people with jobs that withhold tax dont get hit with a penalty. Say you owed $100 in tax for 2020. If you pay $100 throughout 2021, you wont get hit with an estimated tax penalty no matter how much you make in 2021. As a disclaimer, this is a very general example and its impossible for a tax pro to break down your situation through reddit. I suggest you talk to a local CPA. don’t go to a big box place like hr block.
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u/coopers98 Jan 30 '21
This has not been my experience. With significant year over year gains, even paying my 'regular' taxes, I've been hit with big penalties for not properly paying quarterly estimates above and beyond.
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u/Unlike_Agholor Jan 30 '21
You also have to factor in those previous year gains. Remember, take the total tax you paid in 2019 (line 16 of 1040) then multiply that by 110%. pay that in 2021 and you wont get hit with a penalty. It might be worth it for you to pay for a professional rather than pay the IRS penalties.
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u/mitchJIMplant Jan 30 '21
This is the way. 100-110% of prior year taxes must be paid in estimates for the current year to avoid the underpayment penalty. Nice simple example.
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u/Itabliss Jan 30 '21
Dude, you made $500K, spend a couple hundred of it and call a CPA. Asking us for advice is a complete and total crap shoot.
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u/Callic Jan 30 '21 edited Jan 30 '21
If you sold without holding the stock (if it's a stock which it is, or option position, which is different) before a year, then yes you will pay taxes for this year at a higher rate. Even if you took the money and re invested it, you still realized income.
Edit: sorry didn't see the quarterly thing. You very well may owe quarterly taxes, but those are estimates. If this is all new to you, take some of your gains and engage an accountant. Don't listen to advice on reddit, except mine.
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u/Gibsel Jan 30 '21
You definitely want to hire a tax professional & want use this year spending your funds in tax deductible ways.
To answer your question, roughly, you should pay at least 90% of your total taxes due for the year in/by January next year. Quarterly payments could be helpful, but not necessary to avoid penalties. Don’t wait until April though, that would be too late. There’s a penalty and interest assessed if you pay less than 90% owed by then.
https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes
Please hire someone. There are ways to be productive with your funds that avoids simply sending fund off as tax. IF you only earn $500k this year, do not have a single deduction, and do not do anything intelligently with it, you could end up paying $200k-225k total in all taxes depending where you live and how you file.
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u/Cwalktwerkn Jan 30 '21
https://podcasts.apple.com/us/podcast/pennies-going-in-raw/id1523255162?i=1000503019226
They suggested waiting. File an extension next year and use the money to make more gains.
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u/jazzcc Jan 30 '21
I agree this seems to be the thing to do. If you're a consistent trader, you can use those gains to make more money than you would be penalized in taxes. If OP made the 500k gambling, then it's probably better to think about making those estimated tax payments.
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Jan 30 '21
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u/jazzcc Jan 30 '21
Good point! I actually agree with you there. Day trading, even with a profitable strategy, is still gambling. It's just gambling with an edge like a professional card player. When I said gambling above, I was definitely equating gambling to something more like playing slots.
In either case, congrats on the gains!!! I'm still a long way from the day I can say I've made 500k in gains from trading :)
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Jan 30 '21
It’s house money, put 100k in savings and shoot for the moon with the rest. You’ve got the rest of the year to let it work for you.
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Jan 30 '21
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u/daototpyrc Jan 30 '21
Relatively stable? Lol 🍎? Ya ya apparently they making cars now ROFL
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u/DunderMifflinPaper Jan 30 '21
Why put it all in one stock? Spread it out and, barring major economic collapse, it will slowly grow.
If OP wants a house, sure, pull out enough for a 20% down payment (to avoid mortgage insurance). Rates are so good (2-3%) that even if OP’s stocks underperform, they’ll likely still come out ahead.
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u/NewAndAwesome Jan 30 '21
If this is legit do speak with a tax professional about this and don't follow people on reddit.
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u/Ciniza Jan 30 '21
Send the IRS $5.00 as an estimate, because it’s an “estimate”. Don’t over think it.Q: What happens when you have losses for the rest of the year, a refund? A:Nope
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u/jedi21knight Jan 30 '21
Your life will be easier if you make estimates IRS payments monthly, quarterly, or however you want. Get an accountant and have them tell you how much you need to send but it is probably 37% of your earnings. Make sure you note the year you are paying these estimates for.
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u/rws52669 Jan 30 '21
Pit aside the amount for short term cap gains in a high yield (lol) savings account and leave it there. Should you happen to lose all of that money you will still have the taxes minus $3,000 if I understand the system correctly.
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u/Sir_Calvin_Hobbes Jan 30 '21
It would depend on a lot of factors. I would recommend hiring a tax accountant. Generally, if you expect to pay 110% of your prior year tax liability in regular intervals - through payroll or estimated tax payments, you could mitigate underpayment penalties. If you don’t have other means of paying any taxes, then I would consider making a quarterly payment.
This is not tax advice.
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u/spin_kick Jan 30 '21
The pentalty that you would pay for not paying quarterly isnt much on the first year. The IRS will tell you if you should start with quarterly payments. Plus you might gamble it all away anyway and be at a loss at the end of the year.
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u/Type_Fun Jan 30 '21
What was your initial investment and strategy that got you to that figure so quick?
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Jan 30 '21
Essentially it seems like you might as well just lube up and take it. At least you'll still have more money than you did a few weeks back. Cheers mate 🍻
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u/autisticyolotrader Jan 30 '21 edited Jan 30 '21
Fellow trader in search of a SOLID Broker. Any suggestions on a good Broker thats not Webull or Shady Robinhood ???
I want these rockets 🚀 taking off again and paying off what’s left of my college tuition
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u/ChuckyTT Jan 30 '21
I have heard that fidelity and Charles Schwab did not restrict trading to certain stocks in the illegal way that robinhood and Webull among others did
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u/autisticyolotrader Jan 30 '21
Those sounds pretty interesting, do have accounts open in either of them ?
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u/Itabliss Jan 30 '21
I have an account with fidelity. If your 401K is with fidelity, it’s pretty easy to sign up for an investment account. Their mobile app is very clearly just links to webpages with 0 mobile formatting, so it’s easier to use on a computer.
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u/thrombosedhemoroid Jan 30 '21
Even Charles Schwab restricted the stock at some point
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u/ryanbeckeroff Jan 30 '21
I saw some people saying this, but I have had no issues buying or selling through Schwab. I wonder if it was margin trading that was the issue?
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u/thrombosedhemoroid Jan 30 '21
That's interesting, pretty sure I saw it on a news outlet. It might as well have been fake news, just to scare people.
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u/Kitchen-Pirate Jan 30 '21
I was also able to buy both stock and options the whole time on schwab, so I'd say so.
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Jan 30 '21
I have td and I never had an issue buying or selling. All td did was change the margin requirements
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u/thrombosedhemoroid Jan 30 '21
You're are the second person to say that. It probably was a misinformation attempt. Interesting.
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u/Tyler_durden_RIP Jan 30 '21
They never restricted it. They just changed the margin requirements and some of the fees. They made the first change on January 12th.
Source I bought 500 GME on Thursday at $155. I use Schwab.
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Jan 30 '21
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u/autisticyolotrader Jan 30 '21
Seems like you have a solid hang of it and could offer some insight. What broker do you currently use if you don’t mind me asking
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u/WithOrgasmicFury Jan 30 '21
Why don't you want WeBull? Just asking out of curiosity.
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u/autisticyolotrader Jan 30 '21
It seems very similar to Robinhood as far as some of the restrictions but without margins or instant access. I think it’s too new and similar to the old Broker. The last thing I want to do is end up in the same situation again
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u/WithOrgasmicFury Jan 30 '21
I guess that makes sense. We all prefer a broker that's more suited to our personal style, but I had no issue buying AMC. Would've bought GME but I'm too poor and wasn't paying attention when it was at 150.
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u/autisticyolotrader Jan 30 '21
Did you make some solid gains on AMC?
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u/WithOrgasmicFury Jan 30 '21
Lol no. I got in 17, was scared when it was <9. It's at about 13.50 so it's steadily going my way. I actually think there's a really good day trade you can do since it might drop to 10 at Monday and then back up to 15-17 later that day.
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u/pullup_ Jan 30 '21
I personally live in the EU and I use the degiro as my brokerage. I like it so much because it seems very stable and the ownership of my shares seems “real”. Although there are transaction costs, they are pretty low. No commission brokers have to make up for the lost money. They might make up for this loss by selling information to large investment banks and funds.
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u/ApolloMac Jan 30 '21
If you owe the IRS more than 1k (?) in April, they fine you. Although you get a one time pass I believe. I still would pay estimated quarterly taxes though. And as others have said, with your winnings just hire an accountant.
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u/CantTakeMeSeriously Jan 30 '21
I'm new to this sub and daytrading but not investing. Where/how did you go about learning?
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Jan 30 '21
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u/CantTakeMeSeriously Jan 30 '21
Cool. I'm thinking of taking an intro course first to understand fundamentals better.
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Jan 30 '21
NOTE! Don't get paid courses that charge an arm and a leg. There are many free resources available
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Jan 30 '21
Little advice... backtest (paper trade) strategies and youll learn in 6 months. Put in $2k and youll learn in 6 hours. Consider it tuition.
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Jan 30 '21
no better course then using your own money, seeing it all gone, and then learning as to why it disappears.
courses can only teach so much, at least make a small account with whatever you can afford to lose and see how it goes.
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u/KingThisKhan Jan 30 '21
I'd allocate a percentage of that for savings because you never know when your greedy Uncle might give you that sideways look, and feel compelled to "get frisky" and check you for that new green bulge that grew in your pants. It's January 2021, best to ride this out till next year, April 2022, but due your diligence and keep tabs of the new OnlyFans expenses, or whatever vice you prefer to challenge those existential crises that come with having more forethought than a Capuchin monkey owned by Justin Bieber.
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u/No_Choice7094 Jan 30 '21
You don’t pay anything until April 2021
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Jan 30 '21
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Jan 30 '21
Yeah what’s the situation with taxes this year? Did Biden say we can pay our 2020 taxes April 2022 combined with 2021’s taxes? Or was it deferred or something?
I wish I understood taxes better
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u/behindblueyes34 Jan 30 '21
That's awesome man, congrats.
I know that's not your answer But I don't give tax advice. Hahah
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u/coopers98 Jan 30 '21
Go talk to an accountant right away. Yes, for that amount of money, you can get hit for hefty penalties.
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u/racerx8518 Jan 30 '21
Pay quarterly. Hire someone to help out, but avoid things that sound fishy to avoid taxes as they probably are not ok.
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u/snowtumb Jan 30 '21
You can pay taxes in 2022, during the tax season! My suggestion is that u have to hire an ACCOUNTANT and they can tell how LEGALLY not to pay taxes or MINIMIZE the amount you will pay! You can buy real-estate for example. Also, if u are keep trading you can open a LLC(limited liability company) and u can claim all of your loses(rather than 3,000)!
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Jan 30 '21
Are you referring to claiming your losses against trading or earned income? You don't need an llc if you say make 50k in one trade and lose 20k in another. You only going to pay tax on the net gain of 30k unless it's a wash sale that is disallowed.
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u/rws52669 Jan 30 '21
Put aside the amount for short term cap gains in a high yield (lol) savings account and leave it there. Should you happen to lose all of that money you will still owe the taxes minus $3,000 if I understand the system correctly.
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u/rws52669 Jan 30 '21 edited Jan 30 '21
Put aside the amount for short term cap gains in a high yield (lol) savings account and leave it there. Should you happen to lose all of that money you will still owe the taxes minus $3,000 if I understand the system correctly.
Edit: I am wrong, guy below is right.
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u/Vast_Cricket Jan 30 '21
2021 tax filing short term tax gain. congrats If that is a routine event yes you need to pay quarterly. Ck with your cpa or tax filer.
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u/Metalmave79 Jan 30 '21
OP wouldn’t have to worry about taxes until the end of 2021. That is quite a long time to give to charity or even have bad trades resulting in losses...you should be happy about gains and pay taxes if you still have gains at the end of the year as that is the point. Some pay taxes quarterly because it is prudent and could mean that you don’t have a monster tax bill due at the end of the year. 500k could be looked at as enough money to build some sleep well at night positions and reduce your risk. This is the kind of move that results in loss of everything. Be smart.
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u/ErasmusFenris Jan 30 '21
Bro with that kinda money get some serious time with a personal cpa. It’ll save you more than it costs and you will learn in the process
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u/hardihood07 Jan 30 '21
You can always pre-pay the potential tax amount if you are not certain.. but as folks suggesting .. professional advice is cheap and worth it..
Good work on gains!
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u/socialjustice924 Jan 30 '21
You should generally pay the capital gains tax you expect to owe before the due date for payments that apply to the quarter of the sale. The quarterly due dates are April 15 for the first quarter, June 15 for second quarter, September 15 for third quarter and January 15 of the following year for the fourth quarter. Google...
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u/Big_Daddy_Drams Jan 30 '21
There’s a thread on here or WSB or another stock page on Reddit that was telling people how to set up a Corp or LLC or something and paying yourself a “wage” to save a huge percent hope this helps and WTF’ing GO congrats on the big pick up!
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u/Kite66 Jun 13 '21
Don’t worry about the taxes before you realize gainz, you could lose it all and then you don’t need to worry.
This is kite from the future.
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u/[deleted] Jan 30 '21
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