Robinhood Trader Hit with $800,000 TAX BILL



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Hey business warriors, so Robinhood was know for taking money from the rich and giving it to the poor, but now the brokerage app Robinhood is taking money from you and giving it to the IRS. Well not exactly like that, we will get into it.

Alright guys welcome to the show so about 8 million people opened brokerage accounts in the first three quarters of 2020. This was of course due to the bear market brought about by the pandemic. If you are interested in opening a brokerage account click below for your two free stocks from webull.

Anyway not everyone who opened a brokerage account is really that knowledgeable about trading, including a certain un named 30 year old investor who only made $45,000 from his trading activities in 2020 but got hit with an $800,000 tax bill due to his misunderstanding of one trading rule. In this video I am going to tell you exactly what happened so you can be sure this won’t happen to you.

So financial planner Brian Wruk received a text from a client who had put $30,000 in a Robinhood account and had been trading in high volume of between 200k to 2 million dollars per day, I thought he only had $30,000? What that means is he was doing multiple trades every day, so if he bought $30k worth of a stock in the morning, then sold it after 1 hour, then later bought 30k of another stock his trading volume would be 60k.

In this way his trading volume for the year hit $45 million dollars, and not all of those trades were successful. So parhaps he made a few million in profit from his winning trades but when you factor in the losses from his losing trades he only made $45,000 in profit, on top of his regular salary at his job of $60k. Which to be honest is really successful considering the guy only out in $30k to begin with.

But here is the problem, he didn’t know about the wash sale rule. What is the wash sale rule? So the wash sale rule is… oh forget it this is too noisy, and it is nothing to do with washing anyway.

The wash sale rule states that if you sell a stock at a loss, you cannot count that as a realized loss for tax purposes if you repurchase the same security again within 30 days. This is because some people may just sell a stock at a loss just to get a realized loss reported, so they can deduct it for tax purposes and then they repurchase the same security the next day at almost the same price.

Our Robinhood trader was constantly going in and out of all the popular stocks, and he never once waited 30 days after a loss to buy the stock again so all his losses were disallowed by the wash sale rule. He ended up with a capital gain of 1.4 million dollars on his tax return and a tax bill of $800,000. Now I am not sure exactly how we get to 800,000 from that but that is what his what his financial advisor said when telling the story. But if you account for all the losses, the guy only actually made $45,000 for the year. Yet now he owes the IRS $800,000!

So how can you avoid this? Just don’t buy the same security again within 30 days, if you have had a sizable loss on a position. This will only really apply to people who are trading the market. People who just buy and hold, should be fine now really worrying about this rule. But just remember if ever sell something at a loss, you will trigger the wash sale rule if you buy again within 30 days.

Alright guys that is the video, please comment below. If you like the idea of getting into trading and investing in the market, you can get two free stocks for setting up and finding a webull brokerage account. These stocks could be worth up to $1600, lick of the draw what you get. Link below if you are interested! Please subscribe if you are new and we will see you next time, bye.

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32 thoughts on “Robinhood Trader Hit with $800,000 TAX BILL”

  1. Starting early is the best way of getting ahead to build wealth, investing remains a priority. Even in a downtrend, the stock market/crypto market has plenty of opportunities to earn a decent payout, with the right skills and proper understanding of how the market works.

  2. This happened to me on TurboTax. This is wrong! TurboTax does not let you put more than $9,999,999 in at a time. So if you put proceeds $9,999,999 and cost at $9,999,99. Yes you will get a Bill that large for your tax cause it's wrongggggg!

  3. What if…..I bought a stock…..it goes down somewhat, 2nd buy at next bottom, and then I sell both positions when it rebounds to resistance. Wash sale? It was 2 buys, but only 1 sell. The sell was profitable (even including both buys in the sell).

  4. So technically this only applies to losses. Say I purchase apple at $80 and sold at 120. Then let's say apple came back down to 96 and I repurchase within 30 days would that be a wash sell?

  5. So basically if I buy a stock for $10, I sell it for a loss at $9. I buy it back at $9.50 and I sell it for $11. That is a profit of a $1.50 per share. But actually I only made 50 cent per share because of the $1 loss in the beginning. So my question is am I paying taxes on the 50 cent or the whole $1.50?

  6. I started trading last year and I am really nervous about the cost basis I saw. The amounts were definitely not something I gained…Now I'm just praying that I don't have to pay something unfair for the little profit I got when I invested my money. I also lost a lot.

  7. Oh My God then i am fucked i am was new stock Market i have put 25K last year i lost 16k and i just got my 1099 i have a wash sell of 116K i don’t know how much i will pay. the tax ?

  8. So I don't get it. Doesn't make sense. His net was 45k but even after the wash sales. So he traded in and out I do that all day as well. And I take the losses and rebuy sometimes I'm down and get a wash sale. But the taxes would only apply to what his capital gain or loss would be at the EOY and that woudl be taxed at the short term ordinary income rate. so it should be taxed on his 45k profit he made not on the trading vol he did. Am I missing something here? Perhaps it was a headline story cause maybe Turbo Tax misinterpreted the data and put his ordinary income as 50mil maybe that's why there is no follow up?

  9. I to am a wash sale shmuck. Being new to Trading I was trading like crazy just like the above mentioned lad. I was notified by my broker that I have been labeled a Pattern Day Trader but no one mentioned anything about the Wash Sale Rule. Lucky for me I stumbled across the Forbes article as well and I stopped day trading for the moment and did some research. What I found may help others in the same situation. By electing Mark to Market on your next years taxes will save you from the IRS Wash Sale Rule. If you are qualified as a Trader you are eligible to elect Mark to Market on your Taxes. The Wash Sale Rule does not apply to Mark to Market Traders. However you have to elect a year previous of the year you wish to become a Mark to Market Trader.

  10. what if put away for taxes after every time I profit and don't count on any losses to help reduce taxes then do I really have to worry about the wash sale rule at all

  11. I am still confused…if the most you can deduct from taxes is $3000 in losses, wouldn't the wash sale rule only impact up to that $3000 in deductions? The reality is you have to pay taxes on any gains, regardless of your losses. Even if his NET gain was negative, he still has to pay taxes on the gross gain…am I right? So to that end, the wash sale rule has nothing to do with his actual $800K tax liability (less the $3000 in lost deductions). Am I missing something?

  12. What if you close all of your positions at a lost before December 1st 2021 and stop trading all together until January 1st 2022? Will your wash-sell count as a lost? I mean, are you safe from this pit fall?

  13. Wash sales are added to the cost basis. If you close the position before the end of the year and don't repurchase the same stock for 30 days, you can deduct against the new cost basis. Also, the $3K writeoff mentioned in the comments is incorrect; you can't write off more than $3K against other types of income (salary, etc), but you CAN write off entire stock losses against other stock gains.

  14. Stop spreading fucking misleading news… the dude profited 1.4millions and got taxed 800k. The only problem to this article is that he can't offset his profits with his loss since those are wash sales. You can only deduct a little bit so it doesnt fucking matter wash sale or not. He gained 1.4millions PROFITS and got taxed 800k. The article clearly said he profited 1.4millions of profits and got taxed 800k. The 40k is irrelevant… He did profited 1.4millions. Let say if he make $400 profit in a stock and he lost $400 on his next trade within 30days(let's ignore that 30days because that is only for deduction off your tax so it doesnt fucking matters), so that mean he owes taxes on the $400 profits even though he made 0$ in return because he lost it all in his next trade. So if he keep on repeating it on and on and on for a year and his NET profits is only 40k but his actual profits is $1.4millions but he lost $1.36mils back to robinhood. It keep offset his lost… those profits he gain(he lost it all, but he still get taxed because he profited). The idiot thought he didn't need to pay for the taxes he gained even though he LOSS it all. It ain't got shit to do with robinhood. The dude is an idiot… you get tax for ANY PROFITS regardless if you lose it 1 day or 30days after. Wash sale is ONLY FOR DEDUCTION(who give a shit about deduction, you can only deduct so much on your write off for your taxes). The dude profited 1,400,000millions and lost 1,360,000millions through out a year of day trading and he net only 40,000 by end of the year. While he forgot he still OWES the IRS for the 1.4millions he profited. So that's why he is getting taxed for the 800k. Fucking article is misleading as hell. Some people are just dumb and doesn't realize that you're going to be taxed on ALL PROFITS regardless if you lose it now, tomorrow, or in the future. Your gains are irrelevant. Wash sales are irrelevant also. You can't deduct a write off of that whole 1.4millions profits WTF… you can only write off so little of it. The guy is gambling basically. Same thing with Casino. If you profited 300k and lose 300k the next day. You're still going to be taxed for that 300k even though you NET $0 in the end of the week. HE A DAMN GAMBLER.

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