Robinhood Taxes Explained | 5 Things You Need To Know - YouTube

If you're a Robinhood user, you probably enjoy their commission free

trading model for trading both stocks and crypto.

Unfortunately, the IRS doesn't feel the same way.

While there are no fees and commissions to buy and sell stocks on Robinhood,

Uncle Sam still wants his cut of the profits, right?

So if you've been wondering how how do you pay taxes on your Robinhood portfolio?

I'm going to help walk you through everything you need to know how to pay

taxes on your Robinhood stocks and on your Robinhood crypto.

We're going to break down how stocks,

dividends, and even crypto are all taxed on Robinhood, as well as discuss how

to determine if you even owe taxes on your Robinhood portfolio in the first place.

Lastly, guys, if you experienced any investment losses on Robinhood during

the previous year, I'll even show you how you can use those investment losses as tax

deductions to help offset your investment profits.

Now, this video is not sponsored,

but I do have referral links below for my recommended options for different

online tax software for using with Robinhood.

I also have timestamps below if you want

to jump ahead or jump back to any part of today's video.

With that being said, let's get started.

So for starters, let's discuss what you won't owe taxes on Robinhood no matter how

much a stock you bought and owned increased in value.

You won't owe taxes on that stock if you only bought it, but you didn't sell.

So if you never sold the stock,

you won't owe taxes on it no matter how much it increased in value.

With that being said,

let's now break down what will make you eligible for owing taxes.

As you know, nothing in life is free, right?

And much like the income you earn from your job,

the income you earn from your investments is also taxable in the United States.

Because whenever you sell an asset on Robinhood, such as a stock, an ETF,

or even crypto, a taxable event occurs when you sell your asset for a profit.

You experience what's called a capital gain.

For example, let's assume you bought a share of Apple stock on Robinhood for,

let's say, $100, and you later sold that share of stock for $150.

Well, you just experienced a capital gain of $50.

And capital gains from investments can be categorized into two categories.

You have short term capital gains and long term capital gains.

Now, the good news is that there are

investment strategies that can be used to help reduce your overall tax burden.

Here are some of those strategies on how to reduce your taxes from both capital

gains and from dividends in your Robinhood taxable investment account.

When holding stocks for over one year

before you sell, you are taxed at the long term capital gains rate.

But if you buy a stock on Robinhood

and you sell it in under a year, or 365 days, your gains are then classified as

short term capital gains and they are taxed as ordinary income.

This means that your profits are taxed at your ordinary income tax rate.

Yes, guys, this is the same tax rate that wages from your job are taxed at.

However, as I mentioned,

if you buy and hold a stock for longer than one year, or 365 days, before selling

it, your gains are then classified as long term capital gains.

Now, depending on your tax bracket,

this could provide you with a tax savings of up to 20%.

And even better, if you fall into the 10%

to 15% tax bracket, your long term capital gains tax rate could be 0%.

So yes, that's right, guys.

By holding your stocks for at least one

year, you could potentially end up paying no taxes on your profits when you sell.

If you want to see how the capital gains

tax rate applies to your specific tax bracket, feel free to check out this

capital gains tax rate chart for reference.

Of course, guys, these are the current capital gains tax rates for this year.

You can always stay up to date with the latest tax rates on the IRS website.

Next, I want to discuss dividends

and taxes, because if you earn any dividends from your stock holdings

on Robinhood, you also need to pay taxes on that dividend income,

much like from capital gains, because when it comes to the taxation

of dividends, they are also split into two categories.

You have ordinary dividends and qualified dividends.

Now, ordinary dividends are taxed as

ordinary income, that is, at your ordinary tax rate based on your tax bracket.

Qualified dividends, on the other hand, are taxed at a lower tax rate.

Ordinary dividends are taxed between 10% to 37% based on your tax bracket.

Again, this may vary by year.

Qualified dividends, though, are taxed at rates of 20%, 15%, or even 0%.

Again, this also depends on your tax bracket.

If you would like to see how the dividend tax rate applies to your specific tax

bracket, check out this dividend tax rate chart right here for reference.

Again, guys, these are the current dividend tax rates for this year.

You can always stay up to date with the latest tax rates on the IRS website.

Now, in order for a dividend to be a qualified dividend,

it does have to meet some specific criteria, mainly revolving around

the holding period and how long you held that dividend paying stock for.

We're not going to dive into the specifics

in this video because it is a little more detailed.

But you don't have to worry about that because the main thing you need

to know is that Robinhood, when they provide you your tax document,

which we'll get into in just a bit, they break down for you and they keep

track of all your qualified dividends and all your ordinary dividends.

So you're essentially good to go. As you can see,

you can experience significant tax savings on both capital gains and on dividends

earned by simply holding your stocks for at least one year before you sell.

Again, guys, this is another advantage of investing for the long term.

So when it comes to your Robinhood account, whether you sold stocks

for a profit and you experienced a capital gain or you simply earned dividends

from your stock holdings, a taxable event occurred in each scenario.

But what if you experienced investment

losses on Robinhood during the previous year?

Well, my friends, you're in luck because you can actually use those losses as tax

deductions to help offset some of your capital gains you made as well.

Let's say, for example,

if you lost some money on Robinhood from a bad investment or a bad trade,

you can use capital losses and capital loss carryovers to your advantage.

Together, they help act as a way to help

earn back some of what you lost from your bad investments.

Capital losses are the exact opposite of capital gains.

Capital losses occur when you sell an investment for less than you paid.

For example, let's say you bought some shares of Apple stock for $150 a share,

and you later sold the shares of stock for $100.

Well, you just experienced a capital loss of $50.

Fortunately for you, when you sell stocks at a loss, though,

like I mentioned, your capital losses can be used as a way to reduce the tax burden

of both your current and future capital gains because you can claim capital losses

up to the full amount of any capital gains that you have.

Essentially, capital losses from bad

investments can help offset taxes owed from your profitable investments.

Beyond that, guys, you can use up to $3,000 of additional

capital losses to help offset other sorts of ordinary income.

And ordinary income is any type of income earned that is taxable at your ordinary

tax rate, such as income from your salary and wages.

And any remaining capital losses over

that additional $3,000 limit are then classified as capital loss carryovers.

This means you can carry over those

additional losses to the following years to help offset future capital gains.

There's also no limit on how many years you can carry over your capital losses.

Again, together,

capital losses and capital loss carryovers can act as a type of tax deduction

for investors that make it possible for investors to recover part of their

losses on their tax returns by again helping offset capital gains and other

forms of ordinary income potentially, like I said, for years to come.

So before I show you how to pay taxes on your Robinhood portfolio,

let's first take a quick second to discuss how cryptom is actually taxed.

Because since crypto is such a relatively

new technology, the IRS rules regarding it could change at any time.

So always keep that in mind. But in the meantime,

the IRS does treat cryptocurrency as property rather than as cash.

Essentially, it's taxed in the same way as stocks are taxed debt,

meaning there are no tax consequences for purchasing crypto on Robinhood or

for transferring it between crypto wallets held in your name.

However, much like stocks, you are required to pay income tax on any

profit you earned from selling your crypto.

Also similar to stocks, both short term and long term capital

gains tax rates apply again, depending on how long you held the cryptocurrency.

Now, while buying cryptocurrency isn't

a taxable event, any free crypto you earned could be.

So if you receive any cryptocurrency as

a gift, for example, the amount could be taxed as income.

Also similar to stocks, capital losses do apply to crypto as well.

So if you experienced any losses

from trading crypto on Robinhood, you can actually use those losses

to offset any other capital gains that you may have made.

So let's bring this all together now

and explain how you actually pay your Robinhood taxes.

Right? Because you may be wondering,

how am I supposed to keep track of all my capital losses, my capital gains,

my dividends, any interest or miscellaneous income like free stock?

How do I keep track of all that? Well, not to worry, guys,

because Robinhood completely takes care of all of this for you.

Throughout the year, they automatically track all your buys,

all your sales, all your dividends, everything.

And then every year come tax season,

Robin provides you with a form that's called a Form 1099 Tax Document.

Generally speaking, this 1099 tax form calculates all your

investment income for the year, including capital gains, losses, dividends,

and like I said, any interest as well earned in the previous year.

Now, your Robinhood 1099 tax forms.

They sum up everything that you need

to know for filing your investment income, along with your regular tax return.

And when your tax forms are ready,

you should receive an email from Robinhood letting you know.

Now, to retrieve your Robinhood tax

documents, you just have to follow a few simple steps.

So let's now hop on over

into the Robinhood app so I can show you how to retrieve your tax forms.

So here we are now inside the Robinhood app on the Homepage dashboard.

Once you're here to retrieve your tax documents, you simply want to click

on over to your profile icon in the bottom right corner of the app.

Click on that icon right there.

That's going to open up your profile.

From there you're going to go and click

on the top, those three bars in the top, right.

And then you're going to go down to where it says Statements and history.

So you want to click on where it says Statements and history.

Here.

You'll then scroll down to the very bottom and you'll see tax documents.

Once you click on tax documents,

this here is where you'll find all your 1099 tax forms.

Now do keep in mind that if you don't see the tax form for your current tax year,

that means it's simply not available yet in the app.

Again, keep an eye out for your email

because they should send you an email when it is ready for download.

Now, there are multiple types of 1099 tax forms you may receive from Robinhood,

including one for capital gains, one for dividends, one for interest,

one for any miscellaneous income such as free stock you may have earned.

But typically, Robinhood consolidates all

of these forms into a single 199, called a 1099 Composite Tax Document.

If you trade any crypto in the previous

year, you may also receive a separate crypto 1099 tax form as well.

And as I mentioned before, if you don't see your tax documents

for the current tax year, they're likely not yet available in your app.

But here is where you'll find your forms.

You can download them once they're ready.

Also guys, after downloading your 199 tax

forms, they can then either be imported into your favorite tax software or you can

also hand them directly to your CPA or your tax professional.

And if you are considering using an online tax software, I do have a quick tip.

Many tax software today do offer direct

importing of your 1099 tax forms where their software automatically imports all

your capital gains, capital losses, your dividends, all that good stuff.

And depending on if you have more capital

losses or more capital gains for the given year, the software will instantly adjust

the tax you owe or your tax refund amount on your regular tax return.

Now for full disclaimer guys,

I'm not a tax professional nor am I providing you legal or tax advice.

I just want to give you an overview

of the key points you need to know about filing your Robinhood taxes.

If you need tax advice, of course,

always consult with your CPA or your tax professional.

Again, if you would like to check out some of my recommended options of online tax

software for using with Robinhood, I have referral links down below with discounts.

Now, if you enjoyed this video breaking down Robinhood and taxes,

I definitely recommend checking out this video right here where I compare five

of the top online tech software to consider using with Robinhood.

From free to paid options, you're sure to find one that works for you.

So click on over and I'll see you in that video.