Day trading and taxes reddit

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If you joined the GameStop frenzy or dabbled with Bitcoin, get ready for the tax man

Many first-time investors who jumped into the bull run find themselves drowning in tax-time paperwork — as could be any other newbies who joined this year's GameStop frenzy or Bitcoin bonanza for next year's tax return.

Every time a trader sells a stock or a cryptocurrency, it counts as a taxable moment. Because traders may move in and out of different stocks and coins several times a week or day, they can be surprised when hundreds of pieces of paper arrive at their door. The IRS wants a peek at and may want a cut of all of it.

"My Robinhood tax form for is pages. Day trading is fun," Mike Ziemer, 35, a marketing and music entrepreneur from Dallas, said in an online message. When the coronavirus pandemic shut down his live event business he pivoted to day trading. The gains let him pay his bills and build a recording studio, but now he has to dump hundreds of extra pages on his accountant.

"I did let him know in advance that I survived through day trading and that my tax forms would be more complicated," Ziemer said. "I just received them last week, so he'll be getting all of them this week."

The stock market run, with the S&P ending the year up by over 16 percent, paid handsomely for those with the right timing and stomach, drawing in players from all walks of life, from farmers to engineers to the bored and the laid-off and the desperate. Now comes the hangover.

"There were massive capital gains made last year from every stripe and age. Almost everyone comes in having booked a solid $,, half-million, $1 million and didn't pay estimated taxes. They have massive tax bills coming due April 15," Robert Green, a CPA with Green, Neuschwander & Manning, a firm specializing in tax issues for frequent traders, said in a phone call. "They've never paid tax bills like this before."

"They've never paid tax bills like this before."

New traders may struggle with reporting their transactions, especially when dealing with foreign-operated and more obscure exchanges. Some exchanges allow transactions to be downloaded, while others let customers use third-party software that can download their trades to make filing easier. Robinhood sends its users forms for them to file, although forms were delayed for some after the company missed a deadline.

Tax experts and the IRS say taxpayers need to be aware of several unique issues with day trading stocks and cryptocurrency.

Day traders of stocks and crypto may execute frequent transactions as part of their trading strategy, but that can expose them to higher taxes. The IRS considers stocks and cryptocurrency to be property, and that's where capital gains tax comes in.

Property held for at least one year qualifies for the long-term capital gains tax, with a maximum rate of 20 percent. Property held for less than a year is taxed as ordinary income, subject up to a 37 percent tax rate.

To help clear up whether the IRS is interested in crypto holdings, the agency moved a question about cryptocurrency holdings to the top of Form Now there's no avoiding it, even though some may want to.

"A lot of crypto-type people are noncompliance kind of people," Green said.

The IRS has been trying to get more of a handle on the situation and greater visibility into the partly anonymous nature of some crypto transactions.

"The IRS has also had some success in obtaining from third-party cryptocurrency facilitators records of taxpayers who have engaged in cryptocurrency transactions," Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting, said in an email. "The IRS may also use this information to look for tax returns that fail to report cryptocurrency transactions. "

"The IRS has had some success in obtaining from third-party cryptocurrency facilitators records of taxpayers who have engaged in cryptocurrency transactions."

With the volatility of the bull run, equity investors can face steep gains or losses. But there's a silver lining to the losses. Taxpayers are taxed only on net gains — so they can subtract their losses from their gains to reduce their ordinary taxable income, up to $3, Losses over that amount can be carried forward and used in subsequent years.

A speed bump can jolt Robinhood-type day traders if they sold shares at a loss and then bought more of the same stock within 30 days. The IRS won't let them deduct the loss of what is termed a "wash sale."

Retail day traders may also qualify for a coveted "trader tax status" if they can meet certain requirements showing that they're trading frequently and continuously. That allows you to deduct some business expenses and setup costs, as well as claim home office deductions.

Experts recommend that traders set aside one-third of their gains to cover taxes, but many won't, Green said.

"They should look at their marginal tax bracket and put in an estimated amount. But if they're up big, they don't want to. They want their capital working in the market," he said.

Ben Popken is a senior business reporter for NBC News.


Reddit’s Top Investing and Trading Communities

Social platform and news aggregator Reddit made national headlines in early for its role in the volatile movement of “meme stocks” popular among its “subreddit” user communities like WallStreetBets. While some of the movement’s momentum tailed off in February, Reddit is back in the news just months later, as meme trading makes a comeback, and WallStreetBets isn’t the only one moving markets. Here are some of the most popular investing communities on Reddit, including a few you might not have heard of. 


The largest of Reddit’s investing communities, WallStreetBets (WSB) boasts million members, with hundreds of thousands of self-dubbed “degenerates” (the community’s own name for its members) online at any given time. This forum formed the genesis of the meme stock community that dominated news coverage in January  

Key features of WSB’s culture are its vulgarities and memes. Over the years, the community has even established a distinctive lingo that sets it apart, bringing terms like “stonks” and “tendies” into popular lexicon. Its lively atmosphere is paired with a freewheeling approach to investing, living up to the “bets” in its name. As one highly-rated post put it, “The name of the subreddit is WallStreetBets. Not WallStreet-Long-Term-Holds.”


The second-largest subreddit community on investing, r/stocks’ million members provide a more sober outlook on markets compared to WSB. The memes are nowhere to be found. There are no posts broadcasting gains or losses. Rather, users tend to provide analysis of companies, ask questions about dividends, or discuss the impact of broader economic conditions. The community on r/stocks offers a very different environment than the far more popular WSB, appealing to another type of Reddit investor.


Similar to r/stocks, r/investing attracts a more serious audience than most investing forums associated with Reddit. Instead of memes, r/investing is a place for its million members to discuss news and events relevant to investors. 

Although r/investing heavily resembles r/stocks, the former is broader in scope, with users discussing topics important to the economy as a whole. Analysis of a specific company’s financials is rare, with a broader focus and more emphasis on economic fundamentals. 


On r/pennystocks, “astronauts” (members) search for gains by investing in lesser-known companies in the hopes that they’ll make it “to the moon.” Amazon (AMZN) and Apple (AAPL) are largely absent on r/pennystocks, but American Battery Metals Corp (ABML) was tipped for greatness. The stocks may be small, but the community isn’t, at million members and counting. Like other investing communities, discussion threads center around stock analysis and company news, but r/pennystocks offers a more extensive focus on over-the-counter securities, such as ABML. 


A haven for users of the popular online brokerage firm, r/robinhood claims , investors to its name. The most common topics on the forum are troubleshooting problems, and the community stands out for its utility in helping members navigate the platform. Memes and jokes about Robinhood and investing in general also characterize the site, but the forum’s attention to helping others make r/robinhood an essential tool for anyone with the app.


The foremost internet community for those invested in video game retailer and meme stock posterchild GameStop (GME). Despite having fewer members than other popular forums—at ,, it’s less than half the size of r/robinhood—r/GME is highly active, with upwards of 20, users “holding the line” at any given time. Unsurprisingly, the community embraces the slang of WSB, but concentrates on one company. Its atmosphere is one of unbridled positivity. Members believe that a massive short squeeze lies on the horizon, and when the stock dips, announce GME is trading at a discount.


Like r/GME, r/amcstock is a subreddit wholly devoted to a single stock. In this case, it’s fellow internet favorite AMC, the embattled theater chain. The two communities have a lot in common, with all the memes and the slang the internet can muster, and share the same target audience. After all, AMC was one of the companies championed in the retail trading frenzy earlier in With , members, and an astounding 60, surfing its page at times, r/amcstock is the place to be for internet investors with their eye on AMC.

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Reporting online day trading income?

A growing number of Canadians manage their own retirement portfolio and trade online every day.

When you sell a security and make a profit, you realize a capital gain. For most Canadians, the taxable capital gain is determined by multiplying the capital gain amount (profit) with the year’s inclusion rate.

If you’re a day trader that makes a living buying and selling equities, the way you calculate taxes can be a lot more confusing. Do you report transactions as business income instead of capital gains or losses?

It will make a big impact on your taxes. Not knowing how to report your day trading earnings or losses could also result in an audit by the Canada Revenue Agency (CRA).

Are You a Day Trader or Investor?

First, you need to determine if you’re a day trader or investor. It all comes down to how often you trade, how long you hold the equities, and the amount of time you spend trading.

If you buy and sell equities as an investment, you’re an investor and should report any profits or losses on a capital account.

If, on the other hand, you day trade like a securities dealer and buy and sell on a daily basis with the aim of making a short-term profit on small price fluctuations, any gains should be reported as business income.

Investor Income and Losses

Determining whether you’re a day trader or investor will have a big impact on how much you pay in taxes.

If you’re an investor (infrequent trades with long-term investing horizon), you’ll treat any profits as a capital gain. This means 50% of your gains are taxed at your marginal tax rate.

A capital loss can only be used to reduce or eliminate capital gains. On top of that, trading fees are not tax deductible.

Despite the obvious advantage to declaring capital gains as a non-professional trader, there are some drawbacks.

In particular, the “superficial loss rule,” or the “day rule.” If an investor, spouse, or company they control buys back an asset, or similar asset, within 30 days of selling it, they cannot claim the capital loss for tax purposes.

This rule ends up costing investors a lot in taxes each year.

Business Income and Losses

For day traders, any profits and losses are treated as business income, not capital.

As a result, you can’t use the 50% capital gains rate on any profits. Instead, % of all profits are taxed at your current tax rate.

At the same time, % of any losses are deductible too; that can be applied to other sources of income as well.

For example, if you report an annual trading loss of $15, this year and you also run a business, you can deduct your trading losses against other sources of income. This includes money made from your other business, which can significantly reduce the amount you pay in taxes.

If you’re a full-time day trader, you can also claim expenses related to your trading.

Just like with any other business, you need to have receipts for all the items you declare on your tax returns.

The CRA will not accept these kinds of deductions without receipts.

Deductions can include anything from taking stock market trading courses, to educational resources, the purchase of a computer, and your monthly internet bill.

Disclaimer: This blog post is for general reference only. FBC recommends that you consult with a firm that specializes in providing tax consultation services for day trading.  

FBC Helping Canadian Business Owners Reduce Their Tax Burden

Since , FBC has been working exclusively with farmers, business owners, and self-employed contractors. For more than 65 years, we've helped tens of thousands of Members from across the country with their unique tax preparation, business planning, bookkeeping and financial planning needs.


Reddit traders are upending the world of credit investing, too

It was the type of master stroke that could make a Wall Street career. Jason Mudrick’s financing of AMC Entertainment Holdings Inc. at the height of the pandemic netted his hedge fund hundreds of millions of dollars in just a few months.

Then, in the blink of an eye, it was gone. Options contracts meant to hedge the bullish wager went haywire as retail traders flocked to AMC’s stock, pushing shares to once unimaginable heights and costing Mudrick Capital Management all of its gains -- and more.

Distressed investors have long had to have thick skins -- taking criticism as predators, even as they sometimes rescue firms no one else will touch and generate returns for pensions, endowments and foundations. But life in the business is getting even harder, as they can no longer count on a predictable stock market to hedge massive, multipronged bets.

With equities swept up in the whims of exuberant day traders, some funds are now being forced to rethink their business models.

“It’s become a much harder calculus to even consider,” said Scott Hartman, the global co-head of corporate credit and trading at US$14 billion investment firm Varde Partners. “Frankly, many funds have decided to stay away from shorting these stocks altogether.”

Granted, there are other investment opportunities -- some distressed funds are pivoting to private lending and emerging-market plays -- and often other ways that money managers can hedge their exposures or engage in forms of capital-structure arbitrage (plenty of their targets, after all, have no public equity.)

But fiscal and monetary stimulus have greased markets so thoroughly that many of the riskiest companies are now breezing through debt walls with cheap new financing, rather than running into the kind of dead-ends and defaults that generate restructurings or profitable loan-to-own plays.


Indeed, many fund managers say that beyond disrupting their ability to hedge, retail traders are increasingly propping up troubled firms, further limiting the universe of investment opportunities.

Clothing chain Express Inc., prison operator Geo Group Inc., coal miner Peabody Energy Corp. and others have, like AMC, seized on their popularity among day traders to seek equity financing -- an option historically out of reach for firms with their debt loads.

That’s a problem for distressed-credit funds, where corporate failure is a key part of the investment thesis.

Their strategies often center on identifying companies that are out of options, providing last-resort financing and calling the shots throughout the workout process. Their controversial tactics -- in which workers are often left bearing the brunt of the pain -- can lead to huge payoffs, including outright ownership of the cleaned-up corporations.

Yet opportunities are dwindling.

“It’s eerily quiet out there,” said Colin Adams, a senior managing director at corporate advisory firm M3 Partners, where he focuses on debt restructuring. “You have the twin monsters of fiscal stimulus and low interest rates, and this phenomenon with meme stocks adds a whole new dynamic.”


Even companies careening toward default are no longer reliable targets for funds that use short equity bets to hedge or enhance their credit plays.

Investors confronted this reality with a trio of mall owners that filed for bankruptcy over the past year -- CBL & Associates, Pennsylvania Real Estate Investment Trust and Washington Prime Group Inc.

All three saw their stock prices fluctuate -- often surging on little underlying news -- as they approached and then entered Chapter 11, where shareholder value gets wiped out almost as a rule.

Brian Sheehy, the founder of IsZo Capital Management, which takes long and short positions across firms’ capital structures, started shorting the mall owners as they began to buckle under the weight of unpaid rent and monthslong store closures.

“I predicted they would go bankrupt, and I was right -- but I still lost money,” Sheehy said. “This stuff now will go straight up into your face until the day they file,” he said, adding that “the incentives are all thrown off.”


The irony is that achieving meme-stock status can sometimes be a boon not only for companies, but also their creditors.

Mudrick was initially one of the big winners of the Reddit-driven rally in AMC’s shares. After buying up the company’s battered bonds, his fund late last year provided US$ million in financing via complex pay-in-kind toggle notes, while receiving about 22 million shares. Those netted a handsome paper profit after the stock surged as much as per cent in January.

At the same time AMC was able to target retail demand for more than US$1 billion in equity financing via so-called at-the-market offerings, which it used in part to pay down debt.

Yet what starts out as a stroke of good fortune can quickly turn into a burden for sophisticated hedge funds, which rely on markets staying rational to support their complex bets.

Call options Mudrick sold to protect the firm’s holdings from a market plunge -- most of which gave other investors the right to buy shares from him at US$40 or more, well above any price at which they had ever traded -- would suddenly turn into massive liabilities by early June, as the company’s stock surged above US$

Mudrick -- whose firm last month exited its AMC debt and derivative positions -- declined to comment when contacted by Bloomberg.

The theater chain’s shares closed Wednesday at US$, part of a wider retreat in so-called meme stocks in recent days.

AMC didn’t respond to a request seeking comment.


As for the few companies that do default or enter bankruptcy these days, retail traders are disrupting outcomes for credit funds there, too. More than once this year, money managers deep into monthslong restructuring negotiations have had to essentially start from scratch as company fortunes changed.

“The volatility makes it harder for the parties to coalesce around a restructuring plan,” said Dominique Mielle, a former partner at Canyon Capital Advisors and the author of an upcoming book on distressed debt. “One day the equity of the company has no value and the next it does -- that upends the previous day’s work.”

Washington Prime entered Chapter 11 last month with a bankruptcy plan crafted with its largest lender, distressed fund SVPGlobal. The money manager was set to be rewarded for its risk-taking and diligence with a swift court process and ownership of the restructured company.

Now it’s facing objections and delays from equity holders who -- emboldened by Washington Prime’s relatively healthy US$2 stock price as well as the successes of firms like Hertz Global Holdings Inc. in preserving shareholder value -- are demanding a larger payout.

“As investors, we can’t just say these are punks and they’re bidding up a stock for no reason,” Mielle said. “That may be so individually, but collectively they’re a market power and you’ve got to take that into account.”


Trading reddit day and taxes

Exclusive: Reddit seeks to hire advisers for U.S. IPO -sources

Sept 2 (Reuters) - Reddit Inc, the operator of online message boards that became the go-to destination for day traders chasing this year's frenzy for so-called meme stocks, is seeking to hire investment bankers and lawyers for an initial public offering (IPO) in New York, two people familiar with the matter said on Thursday.

Reddit was valued at $10 billion in a private fundraising round last month. By the time the IPO takes place early next year, Reddit hopes it will be valued at more than $15 billion, one of the sources said.

The sources cautioned that the timing and size of the IPO were subject to market conditions and asked not to be identified because the preparations are confidential. A Reddit spokesperson declined to comment.

Reddit's move to hire advisers for its IPO was previously unreported. In a recent interview with the New York Times, Chief Executive Steve Huffman had said the company was planning to go public but had not decided on the timing.

Reddit was founded in by Huffman and entrepreneur Alexis Ohanian. It became known for its niche discussion groups, lagging the popularity of other major social media platforms such as Facebook Inc (FB.O) and Twitter Inc (TWTR.N).

The San Francisco-based company saw explosive growth, however, as a result of retail investors flocking to its message boards at the start of the year for tips on trading GameStop Corp (GME.N) and other meme stocks. Most Wall Street analysts deemed the meme stocks as massively overvalued.

Reddit had roughly 52 million daily active users and over , communities, or "sub-reddits," as of October last year. Huffman has said it gained millions of new users earlier this year during the height of the trading frenzy, but more recent user figures have not yet been released.

The company makes most of its money through advertising. It reported $ million in advertising revenue in the second quarter, an almost threefold jump from the same period last year.

Reddit's biggest investors include Fidelity Investments, Andreessen Horowitz, Sequoia Capital and Tencent Holdings (HK).

Online brokerage Robinhood Markets Inc (HOOD.O), whose trading app also became popular with retail investors, capitalized on the meme stock frenzy by launching an IPO in July. Robinhood itself became a meme stock on Reddit, and its shares have risen roughly 28% since its stock market debut.

Reporting by Anirban Sen in Bengaluru Additional reporting by Echo Wang in New York Editing by Rosalba O'Brien and Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

Day Trading Taxes EXPLAINED: Prepare ahead of time to pay your taxes [2020]
Donald Trump.

It's a bird, it's a plane, it'spossibly another meme stock?

Digital World Acquisition, the special-purpose acquisition company (SPAC) now tied to the latest media and technology venture of former President Donald Trump, saw its stock soar Friday morning, "triggering a halt for volatility" after quadrupling on Thursday, Bloomberg reports.

The ticker by which the SPAC trades — DWAC — was "was among the most popular mentions on Reddit's WallStreetBets, which indicated that DWAC could be having a meme stock moment like GameStop and AMC," writes CNBC. DWAC was the "single most actively traded stock" on Fidelity's brokerage platform on Thursday, with fans of the ex-president pumping the stock online, per Bloomberg.

SPACs work by going public and raising money from investors first, only to then find a private company to merge with, explains The New York Times. Consequently, investors that back a SPAC initially "have no clue" who a merger partner will turn out to be. That means some of DWAC's big investors were likely unaware they were supporting Trump Media and Technology Group until a deal was reached to merge the two companies on Wednesday.

Since that announcement, shares of DWAC have proved "a hit" with day traders, skyrocketing 1,%, writes Bloomberg. Its price "nearly tripled" to $ when the market opened Friday morning.

The ex-president hopes the deal — which values his media company at about $ million, including debt — gives him enough cash to launch a new social media app in dubbed TRUTH Social, whose purpose is "to create a rival to the liberal media consortium and fight back against the 'Big Tech' companies of Silicon Valley." Unfortunately for him, however, it looks like some hackers have already started that war's first battle.

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