Day Trading Tax Trap: Beginners Beware!

If you want to be a day trader, then you’ll want to definitely understand how the tax system works within the online trading world. I’ve been working with beginner traders since 2013 and there is one tax trap lurking in the markets that I’ve continually see snare unsuspecting beginners. As someone who is just getting started within the stock market (or any financial market for that matter), you could be doing quite well within your wealth generation to then be set back due to this trap. I wish I was being overly dramatic here, but I’m not. This tax trap could have some relatively large negative financial impacts on your cash flow, slowing down your overall wealth building strategies. The good news is, once you are aware of some basic trading principles in regards to “profits” and “loses”, you’ll know exactly how the trap works but, more importantly, how to avoid the trap. As traders we need to always be focused on mitigating risk and factoring all forms of risk into our trade plan. This behavior needs to also extend out into the general management of your day trading business. Remember, day trading should not be treated as a hobby! This tax trap is an exact reason why! I hear it way too often, “I was just doing all this for some fun and did well, but now I’m in a mess!”. Let’s get knowledgeable on some basics of trading so you can avoid a much larger potential mess in the future with your trading results!
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[@performerdj2]

I gather that once Ive realized the gain, I may as well sell the stock, or some of my shares in the stock, so I can bank my profit, and I'd have actual money in my savings saved aside to pay on my quarterly or annual taxes, instead of just being taxed on an unrealized gain. Im just a beginner so that's my speculation, but great info and I subscribed to the channel several days ago because it's great info

[@claytrader]

Thanks for the sub!

[@TheMadMariner]

What if you are doing dozens of trades every day, some with gains and some with losses? How do you tabulate that correctly for the IRS on your schedule D at tax time? Is there an automated way of exporting your trades from whatever platform you're using directly into your tax return?

[@claytrader]

Talk to a tax expert.

[@DogVideo-lv8he]

I have the same question, I'm sure there's a software in which does this but i'm yet to talk to a CPA. have you found this out?

[@precisestrat7134]

yes i won 13000 grand in 2021 payed taxes on it 1100 $ then in 2022 lost it all so all through 2022 i lost it do i have to pay even though i lost it all

[@claytrader]

Talk to your accountant.

[@skipdoggy]

That’s really good to know! Taxes are so confusing… and they don’t seem very fair

[@claytrader]

Happy to help!

[@jonnooney7102]

They aren't

[@Apfelkaninchen]

That is actually very good advice. I would have totally forgotten. Thanks for the warning. I love videos like these.

[@claytrader]

Glad it was helpful!

[@mrdivinelightning]

Great advice brother thank you for taking the time to make this video !!

[@claytrader]

Glad it was helpful!

[@AlexLosAngeles]

i had so many wash sales last year i already know im screwed i finished my 1st year day trading and man i didn't know nothing about that

[@claytrader]

Ouch...

[@supremekreep]

I see. So if it doesn't matter if it's a realized loss then to the IRS? So no matter what put aside some money from Initial gains for irs then?

[@claytrader]

A "realized loss" is going to affect your "realized gain".

[@othercousin]

The scenario you describe is investing not day trading. Of course, one would sell the loss at years end so as to deduct the loss so the tax owed would not be on the 100k. How about a vid on day trading where folks like you make hundreds of trades in a year, both gains and losses but at years end you have increased your account but left it all there in your broker account. Or, you may have only withdrawn a portion of your gains? Thanks

[@claytrader]

In the title I say "beginner". You are clearly not a beginner and that's great, but you need to remember that everything is NOT "obvious" to a beginner like it may be "obvious" to you.

[@zacharyyankasky]

I’d love to see this as well:)

[@othercousin]

@@claytrader I meant no offense. Trading less than a year and lost more than I've made. I watch several YT traders like yourself and that's where I learned that. However, I haven't seen anyone answer the questions I'm asking about...

[@claytrader]

@@othercousin not offended, just pointing out that I'm not sure "you" were the intended audience for this video given you're not a beginner.

[@mylaanslickk]

Thank you for clearing that up . Because I was about to definitely quit Forex 😭🤦🏿‍♀️. It’s so many different types of trading so to us new folk we definitely need the exact name of trading that is being discussed

[@eshoneshon9048]

What broker do you use Mr? And what does ""US FATCA reportable person ""mean for opening account on mt4 some brokers asking this question....

[@claytrader]

Here ya go: claytrader.com/resources/

[@JesusRocks26]

Clay, can you cover wash rules for those of us who trade same tickers everyday and how u manage losses for tax purposes like waiting 30 days or don't trade in December etc

[@claytrader]

Thanks for the suggestion.

[@malachi3438]

@@claytrader I've set notifications on, waiting for this video suggested.

[@claytrader]

@@malachi3438 noted!

[@mattrussell3179]

Do you trade under an S Corp? And do you use Mark to market to avoid wash sales?

[@claytrader]

This is a good resource: greentradertax.com/

[@eccentricsmithy2746]

So its taxable the second you sell it, and not the second you cash out and deposit it into your bank account?

[@claytrader]

Correct.

[@sanbetski]

what about wash sales? are they deferred next year?

[@claytrader]

Talk to your accountant.

[@derekcarter3470]

AHH yes I'm glad we put a Government in place to serve us and help along with our pursuit of happiness and comfort and the skies the limit, land of opportunity!!! Right? Keep everyone in their respective class no plane jumping. Thanks Government.

[@Kolocomics]

Thank you for watching Kindly inbox if you have issues on trading 👆👆📩📩

[@claytrader]

Cheers

[@genosydegenosyde8952]

So What if you lose back some of that money in the same year??

[@claytrader]

Then it's not a "gain" anymore.

[@benballano6624]

Very good advice that is something to remember in trading.

[@claytrader]

Cheers

[@alexishernan4289]

Hey clay Do you trade in stock market or forex?

[@Kolocomics]

Thank you for watching Kindly inbox if you have issues on trading 👆👆📩📩

[@claytrader]

Stock market.

[@kamery19]

What happens if I’m in on a trade and unfortunately see unrealized loss and then close the trade to break even. Will I be taxed on that recovery ?

[@claytrader]

Did you "make money" (overall) on the trade?

[@agustinferraresi1166]

fucking taxes

[@claytrader]

lol...

[@khafreahmose8768]

Yea man...

[@christianfiguroa7147]

Wow yea good way to bring attention to this. Really needs to be brought up more for new people

[@claytrader]

Please share!

[@misaelrodriguez6331]

Its said that taxes apply differently on forex traders and that we have to pay taxes from wins and loses 40% federal 20% state total 60% of taxes per trade win or loss we pay that 60%

[@claytrader]

What country do you live in?

[@misaelrodriguez6331]

@@claytrader united states

[@claytrader]

@@misaelrodriguez6331 you don't pay 60% tax on losing trades. What makes you say that?

[@Jp-ui3fw]

Ur saying because the loss has not been realized that the irs can take ur last realized gain?

[@claytrader]

Taxes are based off of realized gains/losses.

[@meatpackingindustryworker3127]

7:50 "...horror stories are always very exciting and beneficial" lol you sicko 🤣

[@claytrader]

LOL :-)

[@Jeff-xy7fv]

On the second trade, I would simply sell on the last trading day of that year (gain or loss), then jump back in on the first Monday of the following year if the chart setup was still intact.

[@claytrader]

That would be one strategy...

[@ZhangtheGreat]

Be careful not to get caught in a wash sale!

[@laxfan1238]

Wait so if i buy and sell same day I should be good then right? Because if I make 100 bucks one day lose 50 bucks the next and realize it to the IRS I lost only made 50$

[@claytrader]

Assuming it's all happening in the SAME year.

[@TradeFlowTrading]

Ok so for esch trade i closed and sold i put a part aside inside somthing that wont make it lose value and take it to pay for the taxes 😅

[@claytrader]

Good thinking!

[@chickenneck]

What is the % that would be needed to cover the taxes?

[@claytrader]

As I said, talk to a LOCAL tax authority.

[@chickenneck]

What would local have to do with it? Wouldn't it be federal.

[@claytrader]

@@chickenneck let's say it is federal. Do you really want specific advice from me? A NON tax professional?

[@chickenneck]

I understand you don't want any liability, just asking for the range you know for capital gains, in this situation. As you know most things are taxed differently. I will ask when I file my taxes this week. We appreciate your content and I am actually a customer.

[@claytrader]

And I appreciate you trusting me enough to even ask, check out this: greentradertax.com/

[@brodylong4777]

What if i day traded for a short time but in total lost money and didnt leave it in any trade?

[@claytrader]

If you lost money, you don't pay taxes.

[@canonigo76]

Can you make video on how you can save money when you have negative realized funds?

[@claytrader]

I'm not sure what you mean.

[@canonigo76]

@@claytrader Sorry. How can you use stocks to your advantage for taxes, whether it is positive or negative profits?

[@claytrader]

@@canonigo76 talk to your local tax professional...

[@TM1861]

I transferred $1000 ( my own money- no profit made)out of my Bitcoin and put it into another trade. I was shocked to find out I’m being taxed on it!

[@claytrader]

That's not right then if you made no profit on it.

[@claytrader]

@@olgakorn53 you're only taxed on "new" money that you profited.

[@zeroconsequence9058]

what about tax on offshore

[@claytrader]

What about it?

[@Mangust2]

Very true for crypto. Because we keep in crypto and only trade dollars ) that IRS doesn’t like.

[@claytrader]

They just don't like it if you don't report your profits.

[@Mangust2]

@@claytrader profits are measured against the ruling meter that is shrinking. You still live in a 10sq meter room, but because measuring system changes, now it reports you renovated your room into 15sq meter ) If to measure profits agains gold that would be fair enough, all IRA accounts become losses ) sadly dollar is not a stable currency, but just another unstable commodity, actually stable, as its direction easy to predict )

[@claytrader]

that's all irrelevant. If you are making profits and not paying taxes, the IRS doesn't like that lol

[@overplayed3553]

well what’s the tax bracket!?

[@claytrader]

Why are you yelling? Tax brackets change, so you need to check what the current one is.

[@jasonperrone4323]

IRS: *knock knock* Me: *opens door holding bag 'o cash* Here you go, leave me alone 😅😅😅

[@claytrader]

lol... while you smoke a cigar?

[@snowyearound]

Seems like this applies more to swing traders and investors.

[@claytrader]

Never heard of a "day trade" turning into a "hold and hope"?

[@trouthunter1000]

@@claytrader and that’s exactly why 90% of traders lose money

[@claytrader]

@@trouthunter1000 if they don't learn from it, I agree.

[@AnaRegalado-hj8ph]

I thought that only if you take your money out into your bank you get taxed.

[@claytrader]

nope.

[@blazengumby4018]

So what's a safe % to put aside of that 100,000$ gain? 25%?

[@claytrader]

Talk to your accountant.

[@blazengumby4018]

@@claytrader I'm going off your example lol wtf. Thx pal

[@claytrader]

@@blazengumby4018 and as I said in the video, I'm not a tax professional. Do you seriously want to take advice from some random KZbin guy?

[@blazengumby4018]

@@claytrader I was just looking for a example to your hypothetical 100,000$ example. Chill man I'm not looking for advice from you! Ppl do come to videos like this for examples an explanations. Maybe you could lightn up a little or don't engage with ppl who watch your videos

[@claytrader]

@@blazengumby4018 I assure you, I'm not the one who needs to chill out in this interaction lol...

[@BenTrades]

That really only applies to investors because day traders dont hold like that lol and if its within the same year youll be broken even if lets say u make 100,000 and then loose 100,000 in the same tax year

[@claytrader]

You've never heard of beginner "day traders" who turn into "investors" as they wait for their positions to go back up?

[@othercousin]

@@claytrader well, you didn't mention this was for bag holders

[@claytrader]

@@othercousin what I described "is" a bag holder lol...

[@BenTrades]

@@claytrader yeah but thats crazy its better to just accept the loss and move on lol

[@claytrader]

@@BenTrades right... that doesn't take away from the fact that what I described happens all the time with beginners.

[@niyawalton2000]

Good info!

[@claytrader]

Glad it was helpful!

[@yamitf77]

ppl really that much unaware and not responsible huh?!

[@claytrader]

yup!

[@guaty4788]

Very good explanation

[@claytrader]

Thanks for watching!

[@arcadiusvinzenz6005]

UNREALIZED GAINS/LOSSES ARE NOT TAXABLE. Saved yourself 10 valuable minutes on this nobrainer.

[@claytrader]

You created more confusion.

[@rosjay_2119]

If you bought 1000 shares of xyz 2 yrs ago for $1 share and now it's at $100 share, and your wife files for divorce, her lawyer is going to want $50k not $500.oo. Realized or not.

[@ZhangtheGreat]

If I made $100k quickly, I'm moving that money immediately out of my trading account and putting it somewhere safe. While I have good self control, I still don't trust myself enough to not blow it on something stupid, be it an even riskier trade or a dumb purchase.

[@claytrader]

That's not logical. If you made $100,000, you'd be logical to think you had a great skill.

[@ZhangtheGreat]

@@claytrader But I know I don't have great skill. If I make that much that quickly at my current experience level in the market, I'd know it was more luck than anything. That's why I'd be immediately protective of such a gain.

[@claytrader]

@@ZhangtheGreat nevermind

[@toddhall5137]

This isn’t day trading

[@claytrader]

What?

[@MediaEdits2701]

this is me now

[@claytrader]

Hope it helps!

[@TennisOnAction]

Tell the IRS everything you earn and lose.

[@claytrader]

Something like that.

[@fleurivalmax6797]

[@claytrader]

:-)