From Retirement Now Newsletter April 15th 2021

Today being April 15th, it would usually be the tax filing deadline. But not this year as it has been moved to May 17th.

I don’t know if that delay is going to bring any cheer to this one guy who made the news recently.

I found an interesting (to say the least) article about a man who opened up a small brokerage account at Robinhood and did some serious day trading during 2020.

“A Robinhood newbie is facing a potential tax bill of $800,000 despite only making $45,000 in net trading profits; the individual also earned $60,000 at his day job. The example reinforces the importance of understanding complex trading rules and the tax implications of certain strategies.” 

The account was opened with $30k in 2020. He transacted between 10 and 50 trades per day, which is a trading volume of between $200k to $2 million each day!

He showed some gains during the year, but he didn’t take into consideration the “wash sale” rule. This rule “prohibits someone from claiming a loss by selling and purchasing either the same or similar securities within 30 days of the sale at a loss”

An investor must wait 31 days before purchasing the same investment again in order to claim the loss for tax purposes.

The rule can get a little complex, and the losses incurred can get realized later since they are added to the cost basis of the re-purchased investment. But you can’t use the losses to offset the gains in a given year.

So essentially, the young investor had some transactions that resulted in gains and other transactions that resulted in losses. But only the gains were considered when calculating his tax bill. His losses could not be used for the year to offset those gains. So although he only came out ahead by $45k after the year was over, for tax purposes he showed a much higher gain and hence higher tax bill.

It’s definitely an extraordinarily extreme case of not understanding current tax rules. And it illustrates the importance of having that baseline knowledge.

Conclusion: I don’t do day trading for myself or my clients. I believe in a much more passive based approach to investing and I believe a lot of the research out there supports this.

And for a lot of people, investing near (or in) retirement is even more stressful than their earlier working years because they know that with only a few years of working remaining they don’t have time to re-earn the money if they make a serious investing mistake.

If you need help with these types of issues for your retirement, click here to schedule a 15-30 minute phone chat with me to see how we could possibly serve you and help improve your retirement security.


Chris Hammond

P.S. We specialize in helping retirees (and those retiring in the next 5-10 years) determine how much they need to save, how to not run out of money, and help them lower their taxes throughout their retirement years.
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