Federal Tax Question
 

Hello -
Like most here, I'm just sitting at home playing the stock market with little to no knowledge of how the market works. This last month, I got VERY lucky with $GME, $UVXY & $OZSC. On my cash account I had some spare money, gambled and profited 82K this month.
Do I take 32% and pay my tax on my next quarterly federal tax payment or wait till the end of the year or just pay it now ? Also, I lost last year about 10K in the market. Can I carry the loss into this years gain ?

Yes, of course I will ask my tax preparer, but just asking how others would handle this.
Thxs

There are two ways to avoid a tax penalty on your 2021 taxes. One way is to make regular estimated quarterly payments equal to the total tax paid (Form 1040, Line 24) on your 2020 tax filing. Another way is to make regular quarterly payments equal to at least 90 percent of the total tax for 2021, which may be unknown at this time. So, by using the first method, you may be able to delay your 2021 taxes if your 2021 taxable income will be a lot higher than your 2020 income.

Capital losses from previous years can be carried forward to future years, but only $3,000 of it can be used to offset ordinary income (not capital gain) per year. But, if the loss in 2020 is a short term capital loss, you may be able to use it to offset a short term capital gain in 2021. But this can get complicated, so it would be something for a tax preparer or tax software to handle.

Like most here? You mentioned the word "gamble". I stopped doing that a long time ago and saved instead. That way I don't have to worry about "harvesting" losses. Sticking with a conservative mix in my portfolios and sleeping well at night. Personally I don't think the next couple of years you should be "gambling". JMHO I am happy for your success however.

There is a difference between an $82k profit on paper, vs. an $82k gain at sale. Did you sell the stocks (do NOT answer on the board..............we do not need to know)

You come here for tax advise on a profit this large? Seriously?

Hello Sir -
Yes, out off all positions, account has settled and not trading anything now, until tomorrow at 400am for now... Thanks

Hello and thxs for reply -
I thank you for your words, but my gain isn't that much considering that several of my friends have killed the market for the past four months.
I'm glad that I finally made more in the market than at Santa Anita & Gulfstream.

Markets are wild and crazy right now. I know a married couple trading Bitcoin and God knows what else. They tell me they are up like $30K in a day or $100K in a week - each. I suggested they sell enough to get their stake out after taxes are paid on the gains and then continue to play with the rest until it all blows up. Oh, the topic... Find a CPA who has lots of experience with trader clients to advise you how to handle your quarterly tax payments.

reddit? wsb?

This is not a difficult question. . .

First, you did not disclose your net short term loss for FY2020 or your incremental tax bracket, but use your FY2020 short term loss carry forward and subtract it from your Q1 gains at the end of Q1 and send 50% - 75% of the tax owed at 32% for your Q1 estimated tax, by April 15, 2021 Not only is this the income tax due date, it’s the due date for your first quarterly estimated tax payment. Now 50%-75% is due to the fact that you have 9 more months to lose it all back. . . For Q2, you calculate your net year to date incremental short term gains taxes due at 32% , and pay the Q2 YTD less Q1 paid 50%-75% of the remaining taxes due, etc, and continue that calculation until Dec 15th, when you figure your year to date net short term gain and pay the balance of the year to date taxes due. . . however, I would also make a spreadsheet with your FY2020 income and expenses, with a proper taxes due based upon your same 2020 return and your net trading gains, so that you can calculated your expected taxes due at the end of each quarter. The key to the calculation is to start with your FY2020 non trading income tax numbers, as that will still occur and will be the starting basis for the incremental trading profits.

The key to not paying the whole amount is that there is no guarantee that you will continue to be profitable through the rest of the year, and there is no way to get overpaid prepaid taxes back until filing the next year. However, paying the total year to date estimated taxes due by Dec 15th will minimize any tax penalties, and the interest rate on differentials are fairly low.

Now, why is this payment is important? A company legal counsel I worked with's nephew have made $600K for the year, and then lost it all in the following year, prior to paying taxes, so effectively he had a $200K tax bill and no cash to pay. . . you don't want that legal problem to follow you the rest of your life.

If you want a customized spreadsheet made for you, for FY21, PM me, and I will provide you with one by the end of Q1

So pay the tax, but not until the end of each quarter's sold positions, and close out all trading by Dec 15th pay the final estimated tax for the year and start again Jan 2nd

sportsguy

Thank you sir for your time and advise.
BTW, I have just mailed my first quarterly payment for 2021 (early) as I plan
to use the (free money less taxes) to continue day trading. Even I loss it all, it was a fun ride.
Thanks again....

I'm not sure why you would make such a sizeable quarterly payment so early in the quarter. While the IRS DOES expect you to pay the taxes due in the quarter in which the income was earned, you don't know what your total quarterly income will be. It may very well be more than the $82K in realized capital gains income you have received thus far in the first quarter. Since you may not actually be in the 32% tax bracket this early in the tax year (your tax bracket may be significantly lower), you may have overpaid your first quarter taxes. As you know, your tax bracket increases throughout the year as additional income becomes taxable. Remember that your Standard Deduction is subtracted from your first quarter earnings, thereby reducing your first quarter tax liability.

Since you are clearly not well versed in computing and making estimated quarterly tax payments, the link listed below will explain the Safe Harbor Rule which may be your easiest and best tax payment solution. Estimated quarterly payments can be made in equal amounts if you decide to use the method in which you pay 100% of the taxes owed/paid in 2020. If you decide to use the 90% Rule, you will to need compute your taxes quarterly and pay estimated taxes on the income as it is earned and on capital gains in the quarter in which they are realized throughout the year. A realized capital losses during the 2nd and subsequent quarters will reduce your overall tax liability, as you will have most likely overpaid your taxes in a previous quarter(s). So, any overpayment in the previous quarter needs to be factored into the current quarter's estimated tax payment. Your quarterly estimated tax payments for 2021 can be accurately calculated (within about a hundred dollars) by using the 2020, Turbo Tax or H&R Block tax software. Just enter your taxable income and quarterly gains/losses quarterly. Don't forget to enter any witholding you may have had during each quarter.

Avoid Penalty For Underpaying Estimated Taxes | H&R Block

For future reference, estimated tax payments can be made online on the IRS website. They will provide you with confirmation of receipt which can be confirmed on their website. I hope this helps.

I always use the prior year method to calculate my quarterly payments. Take the total tax number on Line 24 from the 2020 Form 1040 and divide by 4. That will be my quarterly estimated tax payment for 2021. As I understand it, even if my 2021 income doubles or triples from 2020, I will not owe a penalty for underpayment of estimated taxes.

You must have done very well to be up in the 32% tax bracket (net $326k after deductions) I don’t think capital gains are quarter to quarter, it’s annually. so set the money aside in a safe place or use it to your advantage to make more money and sell any underwater investments before year end to offset the gains.

Any advice on financial matters on a public blog is ridiculous. Go see a tax guy and dont announce to the world how much money you have. Would you run down the street waving a winning lottery ticket

I think it makes a lot of sense that you came here and asked for some guidance on this matter. As a lifelong business owner, I benefited greatly from seeking some dialogue with other individuals before I sat down with my tax accountant or attorney. When they spoke and gave me advice, I felt like I had a better handle on what they were telling me and understood the options they were presenting because I had spoken ahead of time with other knowledgeable individuals. It gave me time to prep and have good questions for my tax preparer rather than having to think on the fly while I was on their dime. I think it made perfect sense that you thought some advice from people on this forum. I enjoyed reading the knowledgeable advice. I think the snarky people need to get a life.