Hi, so I am a novice stock trader and has been using Robinhood to buy and sell stocks on daily basis. I received the tax form from Robinhood and the net gain is listed as about 75k. Now the problem is, if I made that much money I would be jumping in joy right now. I did not profit from trading stocks in 2021. Upon googling, the only explanation I can come up with is because of the wash rule. I am kicking myself for not doing the research before jumping into stock trading. Now I owe a huge amount of money that I dont have to pay for taxes that I made no money on. I am so lost. Can anyone guide me as to how I can mediate this problem? Thanks in advance.
As you mentioned, wash sale occurs when you sell or trade stocks at a loss and within 30 days of the sale, you purchase the same or a substantially identical rule. Unfortunately for 2021 tax year, you will not be able to do any tax planning to remove the wash sale. For 2022, you can make sure not to repurchase securities which you sold for a loss within 30 days of the sale.
Additionally, since you are being affected by the wash sale rule, even though your loss will be disallowed, it will be added to the cost basis of the securities you repurchased. What this means is that since your cost basis is now higher, when you sell the stocks affected by wash sale later for a gain, your taxable gains will be less since your cost basis is higher. Also, if you sell the investments effect by wash sale at a loss, the higher cost basis would increase the size of the loss for which you could claim a deduction.
As you mentioned, wash sale occurs when you sell or trade stocks at a loss and within 30 days of the sale, you purchase the same or a substantially identical rule. Unfortunately for 2021 tax year, you will not be able to do any tax planning to remove the wash sale. For 2022, you can make sure not to repurchase securities which you sold for a loss within 30 days of the sale.
Additionally, since you are being affected by the wash sale rule, even though your loss will be disallowed, it will be added to the cost basis of the securities you repurchased. What this means is that since your cost basis is now higher, when you sell the stocks affected by wash sale later for a gain, your taxable gains will be less since your cost basis is higher. Also, if you sell the investments effect by wash sale at a loss, the higher cost basis would increase the size of the loss for which you could claim a deduction.
Were you concentrating on one or two stocks all year long ?
If you are trading like crazy,
wash sale disallowed losses can accumulate.
Evidently, that's what happened to you.
I definitely learned it the hard way. Robinhood made stock trading extremely easy and I played it like it’s a game. To answer your question, I only bought/sold those popular name brand stocks because I simply did not know any better. I just wish someone could have explained something as important as the wash rule to me before this happened.
in other words, he'll be ok? So if he figures out how to report it in Turbo Tax such that the cost basis for each of these of these wash sale transactions, then the extra tax implications of these wash sales will be mitigated and he'll be ok?
" if he figures out how to report it in Turbo Tax"
The only way to report it in TurboTax with mitigation is to falsify.