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Dabble in day trading? Beware of tax obligations

Brittany De Lea

As more individuals dabble in day-trading during the coronavirus pandemic, some may be surprised by the tax implications next year.

People who are not used to these types of tax obligations may not be aware that they will owe on gains, Michael Corrente, managing director at CBIZ MHM, told FOX Business.

“There is a potential that if you think you’re doing something for fun, it’s not [just] fun,” Corrente said. “There are income implications and tax implications.”

ROBINHOOD TRADING APP HIRING ‘HUNDREDS’ IN JOB RAMP-UP

These types of trades are typically taxed as capital gains or losses, assuming it is not the individual’s full-time job.

Anything held for less than a year is considered a short-term capital gain – which means it is taxed at the same rate as ordinary income.

Stocks held for more than a year are taxed at ordinary capital gains rates, which are generally lower – the highest rate sitting at 23.8%, though most people will owe less.

If you are not doing too well in the market, you are able to deduct up to $3,000 in net losses per year.

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There has been an uptick in day trading throughout the pandemic, especially since many were confined to their homes and online betting for daily fantasy sports was unavailable. According to The Wall Street Journal, individual investors more than doubled their normal levels of activity – accounting for one-fifth of total stock market activity at times.

As previously reported by FOX Business, trading app Robinhood has experienced explosive growth. The company surpassed TD Ameritrade, Interactive Brokers, Charles Schwab and E*Trade in Daily Average Revenue Trades, known as DARTS for short, at 4.31 million.

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FOX Business’ Suzanne O’Halloran contributed to this report.

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