Day trading newbies: Beware those short-term gains come tax time

Key Points
  • Enthusiasts who are actively buying and selling stocks on Robinhood and other trading platforms may not realize the tax implications.
  • Sold a stock after holding it for less than a year? Your gain on the holding is subject to ordinary income tax rates – which can run as high as 37%.
  • Brokerage houses generate tax forms when you make transactions in your account, so active traders can end up with a complicated tax return next spring.
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People who took up day-trading in brokerage accounts during the pandemic are about to have a rude awakening: Uncle Sam wants a slice of their gains.

With the S&P 500 index up more than 50% from its March low, it's been an exciting time for people stuck at home to make speculative stock bets.

"It feels very 1999 to me – it's a very bubbly feeling," said Michael Goodman, CPA and founder of Wealthstream Advisors in New York.

Problems arise when new traders let rising markets distract them from the tax liabilities they're incurring as they buy and sell their positions.

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