When someone sells an asset (e.g., a property), the government is required to charge them capital gains tax. g. , shares or property) for a profit.
Investing through Robinhood can be an exciting way to participate in the stock market, but it’s crucial to understand the tax implications of your investment activities. While the allure of commission-free trading and fractional shares may draw you in, it’s important to remember that any profits you generate are subject to taxation, regardless of whether you withdraw the funds or not.
Understanding Capital Gains Tax
The primary tax you’ll encounter on Robinhood is capital gains tax. This tax applies when you sell an asset, such as a stock or cryptocurrency, for a profit. The amount of tax you owe depends on two factors:
- Holding period: The length of time you held the asset before selling it.
- Your income tax bracket: Your overall taxable income for the year.
Short-term vs. Long-term Capital Gains:
- Short-term capital gains: If you sell an asset you’ve held for less than one year, the profit is considered a short-term capital gain and taxed at your ordinary income tax rate. This rate can be as high as 37% for high-income earners.
- Long-term capital gains: If you hold an asset for more than one year before selling it, the profit is considered a long-term capital gain and taxed at a lower rate. The long-term capital gains tax rates are 0%, 15%, or 20%, depending on your income tax bracket.
Tax Implications of Not Withdrawing
Even if you choose not to withdraw your profits from Robinhood, you are still responsible for paying capital gains tax on any realized gains. This means that when you sell an asset for a profit you must report that gain on your tax return, regardless of whether you have withdrawn the funds from your Robinhood account.
Strategies to Minimize Taxes
While you cannot avoid paying taxes on your Robinhood profits altogether there are strategies you can employ to minimize your tax burden:
- Hold investments for over one year: By holding your investments for more than one year, you can qualify for the lower long-term capital gains tax rates. This can significantly reduce your tax liability.
- Tax-loss harvesting: If you have some losing investments in your portfolio, you can sell them to offset your gains from other investments. This can help reduce your taxable income and lower your overall tax bill.
- Invest in tax-advantaged accounts: Consider investing in tax-advantaged accounts like IRAs or 401(k)s. These accounts offer tax-deferred or tax-free growth, allowing you to accumulate wealth without incurring immediate tax liabilities.
While investing through Robinhood offers numerous benefits, it’s crucial to remember that any profits you generate are subject to taxation. Understanding the concept of capital gains tax and the strategies to minimize your tax burden can help you make informed investment decisions and maximize your returns. By carefully planning your investment strategy and staying informed about tax laws, you can navigate the complexities of Robinhood investing and achieve your financial goals while minimizing your tax obligations.
What are the current capital gains tax rates?
This group includes investors who hold shares or real estate for a year or less before selling it for a profit. The gain is taxed the same as regular income.
The rates for an individual in 2022 (taxes due in spring of 2023) and 2023 (taxes anticipated to be due in spring of 2024) are as follows:
| Capital gains tax rate | 2022 Taxable income | 2023 Taxable income |
| 10% | $0 to $10,275 | $0 to $11,000 |
| 12% | $10,276 to $41,775 | $11,001 to $44,725 |
| 22% | $41,776 to $89,075 | $44,726 to $95,375 |
| 24% | $89,076 to $170,050 | $95,376 to $182,100 |
| 32% | $170,051 to $215,950 | $182,101 to $231,250 |
| 35% | $215,951 to $539,900 | $231,251 to $578,125 |
| 37% | $539,901 and up | $578,126 and up and up |
Long-Term Capital Gains Tax
If an individual holds stocks or real estate for more than a year before selling it for a profit, they will be considered a long-term investor and may qualify for a significant tax rate reduction.
The long-term capital gains tax rates for an individual for the years 2022 (taxes due in spring 2023) and 2023 (taxes due in spring 2024) are as follows:
| Capital gains tax rate | 2022 Taxable income | 2023 Taxable income |
| 0% | $0 to $41,675 | $0 to $44,625 |
| 15% | $41,676 to $459,750 | $44,626 to $492,300 |
| 20% | $459,751 and up | $492,301 and up |
When an unmarried individual owns a property and sells it for a profit, they are not required to pay taxes on gains up to a total of $250,000 ($500,000 if married).
If the person has not resided in the home, they are not eligible for this capital gains tax exemption (i e. , it’s an investment property), resides abroad, or hasn’t owned or occupied the home for two of the five years prior to the sale date
A homeowner will not be eligible to apply for the exemption if they have already used their $250K or $500K CGT tax credit within the previous two years.
Why You Can’t Withdraw Your Money From Robinhood
FAQ
Do I get taxed on stock if I don’t cash out?
Do you have to pay taxes if you make money on Robinhood?
Do I need to file Robinhood taxes if I didn’t sell?
How long do you have to hold stock to avoid tax?
Does Robinhood pay taxes?
Robinhood’s investing platform doesn’t withhold taxes when you sell securities or receive dividends on your Robinhood stocks. Robinhood stocks and cryptocurrency trades might be subject to capital gain tax. The tax will be levied on the profit realized from the sale of a capital asset like stocks or cryptocurrencies.
Are Robinhood stocks tax deductible?
Short-term capital gain tax rates are similar to ordinary income tax rates and can be as high as 37 percent. Finally, you can deduct losses from Robinhood stock or crypto trades from your tax bill. To pay taxes on Robinhood stocks, you will receive a consolidated 1099 tax form that outlines all of your transactions for the year.
How much tax do you pay if you lose money on Robinhood?
For 2023, you’ll be taxed at a rate of 0%, 15%, or 20%, depending on your long-term capital gains rate (This is different from your normal income tax rate) It’s rare for long-term capital gains to be taxed at more than 15%, though. Do you have to pay taxes if you lose money on Robinhood? No.
How do I pay taxes on Robinhood stocks?
To pay taxes on Robinhood stocks, you will receive a consolidated 1099 tax form that outlines all of your transactions for the year. The Robinhood platform lets you invest in stocks, ETFs, and cryptocurrencies without having to pay brokerage fees.