Why You Need To Understand The Tax Implications of Capital Gains 

With tax season in full speed and the recent influx of DIY traders, it’s a great time to discuss the tax implications of capital gains in the market and how to better educate traders who are lacking the knowledge of the implications when trading the stock market. 

In a recent twitter thread, tweeters were discussing the lack of education platforms like Robinhood provide on capital gains and wash sale rules. With the recent short squeeze stocks and bitcoin craze, people have been seeing enormous gains in the market, yet do not know what to do with the gains once they make them.

Pictured above is a snippet from a NAPFA forum where a guy started with $30,000 in his Robinhood account, transacted $45,000,000 in 2020, for a net profit of $45,000. However, when he received his 1099B, he had accumulated 1.4 million dollars in capital gains and a $800 tax bill. Because of his lack of knowledge about wash sale rules and the tax implications of capital gains, he saw a huge tax hit. 

With financial literacy month just days away, this example is extremely timely and important to bring light to. As you can see, there is such a large gap in financial literacy in this country, especially surrounding the implications of trading and behavioral biases involved. Please inquire with a financial professional before making major moves in the market. It’s important to fully understand the implications of your decisions and how they will affect all aspects of your portfolio. If you have any questions, please reach out to us at info@shermanwealth.com or schedule a 30-minute complimentary appointment here.

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