Trading stocks and taxes question

[michaelbsf]

I was buying and selling some stocks in Robinhood from June to December 2017.My portfolio was up and down and there were a lot of transactions, because I was trying to use swing trading approach. At the end of December 2017 I earned approx. $3000

Then for 2018 I decided to stop trading and switch to a long term investment instead. So, at the end of December, I withdraw around 20% of my funds (which is around 20K) and rebalanced my portfolio, to switch to more long term stocks.

Now, I started to prepare my taxes in turbotax where  I imported data from Robinhood (1099B, 1099 DIV and transactions details). I was very surprised when I found out that I owe more than $1000 in taxes for 2017.

Now, I am very confused with the way how it calculates the taxes. Even thought I rebalanced my portfolio, I still left 80% of my funds in the stocks, so I expected it wouldn't be considered as taking profit for tax purposes.

Can somebody explain this to me?

Thank you!

[michaelbsf]

To give you more details, here is what I have in my 1099-B in addition to a huge list of transactions

Proceeds: $1,309
Cost or other basis $1,323
Wash Sale Loss disallowed: $16,700
Gain/Loss Amount: ($13500)

[Dollar Slice]

Just to be clear, and not trying to sound condescending - are you aware that each buy/sell transaction is a taxable event? Not just when you withdraw from the account?

It's hard to guess what tax you should actually be paying with the information given, but if I had $3000 in short-term gains in 2017 I would have ended up paying about 38% tax ($1140) on it. So it doesn't sound unreasonable to me that you would owe over $1k.

[fdhs_runner]

^ +1

Not only that, but your wash sales are rather complicated. It sounds like you had short term gains while none of your losses were allowed.

Wash Sales

You cannot deduct losses from sales or trades of stock or securities in a wash sale unless the loss was incurred in the ordinary course of your business as a dealer in stock or securities.

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

1.Buy substantially identical stock or securities,

2.Acquire substantially identical stock or securities in a fully taxable trade,

3.Acquire a contract or option to buy substantially identical stock or securities, or

4.Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.



If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.

If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period of the stock or securities sold.


Example 1.

You buy 100 shares of X stock for $1,000. You sell these shares for $750 and within 30 days from the sale you buy 100 shares of the same stock for $800. Because you bought substantially identical stock, you cannot deduct your loss of $250 on the sale. However, you add the disallowed loss of $250 to the cost of the new stock, $800, to obtain your basis in the new stock, which is $1,050.


Example 2.

You are an employee of a corporation with an incentive pay plan. Under this plan, you are given 10 shares of the corporation's stock as a bonus award. You include the fair market value of the stock in your gross income as additional pay. You later sell these shares at a loss. If you receive another bonus award of substantially identical stock within 30 days of the sale, you cannot deduct your loss on the sale.

[MustacheAndaHalf]

If you sell at a loss, but within 30 days buy the same asset again, you have a wash sale.  There's other situations, but you can probably find several trades that fit that description.  It might also apply to a stock you buy but then sell within 30 days - I forget since it doesn't happen that often.

I recall in an experiment I ran, I decided on "5 weeks" partly because of the IRS wash sale rule.  By ensuring my trades were 35 days apart, I knew I didn't have to worry about the wash sale rule.  (It was a momentum experiment, still running after 2 years in the Investor forum).

[terran]

It might also apply to a stock you buy but then sell within 30 days - I forget since it doesn't happen that often.

Don't quote me on this, but I think as long as you sell your entire position you're fine even if you bought it within 30 days. The idea of the wash sale rule is to make sure you're making a real change in your investments, not just taking the loss an ending up exactly where you were before. They wouldn't want you to buy an investment and then immediately sell other shares of that same investment at a loss as a way to get around the wash sale rule since that would be basically the same as doing it the other way around. But as long as you're totally out of that investment for the following 30 days you should be fine (again, do your own research, that's just off the top of my head).