I have never invested before this year and am curious about how I pay taxes at tax time?

Question

I invested 13,000 dollars through an online trading company and have made many trades over the past 8 months. My current balance is around 14,500. How would I figure out the taxes that I have to pay on the money that I made(1,500) ? Please give me as much detail as possible.
Thanks

Answer 1

You will pay tax on the gains (or losses) on the transactions you have completed during the year. It doesn't really matter what your account balance is during the year.

For example, let's say you took your $13,000 and bought a stock. It went up to $16,000, and you sold it. You then take the $16,000 and buy a stock that goes down to $12,000. However, you don't sell that stock before the end of the year.

Even though your portfolio has gone down in value by $1,000, for 2007 you would report a gain of $3,000 ($16,000 sale price - $13,000 cost) for the one transaction completed during 2007.

The IRS gets reported to it, and you put on your Schedule 'D', all the sales for 2007 and the cost of each stock sold (whenever it was purchased.)

You will want to look at your portfolio and see if there are any "losers" you want to sell before the end of the year to offset gains you've made in other stocks.

Answer 2

You will report all your profit and loss from the sale of stocks on schedule D (Form 1040).
You don't qualify to be a Day Trader. Normally, if you spend over 20 hours a week and do over 1000 trades in a year, and don't have a full time job, then may be you can qualify.

Answer 3

I would strongly suggest that you consult with a pro -- a CPA or EA, not a store-front tax prep mill. The rules can be complex if you're classified as a day trader and even if you're not you'll need to account for all of your trades involving sales on your returns.