How will my profit and loss from day trading be taxed at the end of the year?
How is my profit and loss from day trading taxed at the end of the year? I also have a job and I'm always in the 15% tax bracket. If I make a profit from trading while I work, and my earnings from trading and working stay within the 15% bracket, will I be taxed the same?
I am guessing that your day trading is not in a tax deferred account, but in an investment account.
Therefore, any profits will be treated as long term or short term capital gains.
Capital gains and losses are classified as long term if the asset was held for more than one year, and short term if held for a year or less. Taxpayers in the 10 and 15 percent tax brackets pay no tax on long-term gains on most assets; taxpayers in the 25-, 28-, 33-, or 35- percent income tax brackets face a 15 percent rate on long-term capital gains. For those in the top 39.6 percent bracket for ordinary income, the rate is 20 percent. Short-term capital gains are taxed at the same rate as ordinary income. There also is a 3.8 percent tax on net investment income for single taxpayers with modified adjusted gross income above $200,000 ($250,000 for married couples filing jointly). Note, too, that capital gains, in some cases, face an effective tax rates above the 23.8 percent statutory rate because of phaseouts in the tax code.
I hope that helps!
When it comes to day trading, you'll be taxed at short-term capital gain tax rates, which are your ordinary income tax schedules. It's possible that if you're really successful at it (and we all hope you are!), that you're trading activity will launch you into another, higher tax bracket.
As noted in the previous answer, your short term gains will be taxed as ordinary income, which in all likelihood, will be higher than a long term capital gains rate. I am curious though, what kind of gains did you have? Most day traders may experience a period where they are profitable, like a year or two. Beyond that, it becomes increasingly hard to make a reasonable return due to commissions, bid/ask spreads, and other cost drags. Add to that the absolute difficulty of trading against the professionals with whom you are ultimately trading and this becomes a fairly difficult pursuit. Please note that since most day traders ultimately fail and lose a lot of capital, you may want to consider an alternative path to investing your savings. You may be that one in a hundred person but make sure you check along the way in case you are not.
Since you are day trading, which means you are holding assets shorter than one year, it falls into short-term capital gain or loss. Looking at the IRS Topic 409, it states, "The tax rate on most net capital gain is no higher than 15% for most taxpayers. Some or all net capital gain may be taxed at 0% if you're in the 10% or 15% ordinary income tax brackets." View more info https://www.irs.gov/taxtopics/tc409.html. When dealing with tax, I recommend speaking with a CPA to make sure the aforementioned rule applies to your situation.