hey traders thanks for checking out this video my name is Travis from master the
market and this is going to be a quick video talking about day trading taxes
and how stock market taxes work in general now obviously i am a day trader and an investor myself
i'm not a tax professional so these are just going to be the basics that i've learned along
the years as a day trader and investor myself and i'm going to be giving you some tips to
hopefully help you save some money when it comes time to paying taxes on your stock investments
okay so to get started i want to quickly explain just how stock market taxes work in general
anytime you buy and sell a stock you're potentially going to end up owing taxes on
that investment so let's take apple for example here and say that early on in april of 2020 just
as everything was starting to bottom out as the big sell-off happened from the covet 19 pandemic
and let's go ahead and pretend that you invested into apple at 60 dollars per share
with 100 shares in total now fast forward a few months everything starts to bounce back up the
economy and the market is recovering apple is now at a value of 120 per share which is of course a
100 gain from your 60 per share investment at this time you decide to sell your 100 shares of apple
locking in your 60 per share which means that you have a total profit on that investment of 6 000
now that 6 000 is going to be considered a capital gain and that's where taxes in the stock market
are going to come into play so in a way you can really think of this pretty similarly to if you
were to buy a house at maybe 100 000 and then a few years later you decide to sell that house
and because of appreciation in your area the value of that house went up over those couple of years
that you lived there and you sell your house then at one hundred and fifty thousand dollars well in
that case that means that you made fifty thousand dollars by living in that house over the past
couple of years that just like your investment in the stock market is also considered a capital gain
so these two types of investments really go hand in hand okay but with that being said
there are really two types of ways that you can be taxed as an investor or a trader in the market
the first of those is going to be with long-term capital gains a long-term capital gain is going
to be tax owed on investments that you own for an entire year or longer now i know a lot of the
people that watch my videos are short-term traders such as day traders or swing traders so this is
probably not going to apply much to you but just bear with me here for just a moment because we are
going to talk about how taxes work for short-term trading as well okay but let's say that you have a
long-term investment that you were in for a few years and you decide to sell over the past year
the money that you made on that long-term investment is going to be taxed at a
long-term capital gains tax rate that can be anywhere from zero to 20 percent
and that's going to depend on your taxable income for the year if your taxable income was anywhere
from zero dollars to about forty thousand dollars your tax rate is going to be zero percent anywhere
from about forty thousand to four hundred forty five thousand you're going to owe fifteen 15
on your capital gains and if you happen to make over 445 000 you would be taxed at a rate of 20
on your long-term capital gains now unfortunately for us day traders and shorter term traders we
generally are going to end up owing a little bit more in taxes than anybody that is doing long-term
investing and that's where short-term capital gains is going to come into play short-term
capital gains are simply gains on investments that you own for less than a year and of course
this is going to apply to day traders and swing traders and this short term capital gains tax
actually has the exact same tax rates and the exact same tax brackets as your ordinary income
so that means that your tax rate as a day trader or swing trader can be anywhere from 10 all the
way up to 37 percent of course that's going to depend on how much you actually made from your
investments but again generally speaking this is of course a little bit higher than if you
were doing any kind of long-term investing because that is going to be capped at 20
okay so hopefully this should go without saying but this should really show you the importance
of keeping some money aside after you make a big gain in the stock market because once tax
time does come around you're going to of course owe money on that profit my recommendation is to
consistently put aside maybe 20 to 30 percent of your profits in the stock market into some
kind of savings account to make sure that you are of course prepared when tax time does come around
all right now with all of that being said i want to share quickly with you one of the
ways that you can actually help yourself reduce the amount of taxes that you owe
and that's going to be with write-offs write-offs are simply expenses that can be deducted from
profits to reduce your amount of taxable earnings and the amount that you owe these apply to day
traders swing traders and even long-term investors and actually these apply really to anybody that
is doing any kind of self-employed business or any kind of entrepreneurial venture as well let's kind
of break down exactly how these tax write-offs work let's go ahead and for example say that there
is a trader that made ninety thousand dollars in the past year in short-term capital gains
that ninety thousand dollars is going to put them at the 24 tax rate which means
that they're going to owe 14 751 dollars plus 24 of any amount over that 86 375 dollar low
now let's say the same trader kept track of other different write-offs that they could potentially
use over the past year and they have a detailed list of all the things that they spent money on to
help with their investments and to help with their trading they come up with a total of ten thousand
dollars in tax write-offs that means that their taxable income is now just eighty thousand dollars
which is going to bring them down from the 24 tax bracket all the way down to the 22 tax bracket
so they now are going to owe 4 four dollars plus twenty two percent of the amount over forty
thousand five hundred twenty five dollars okay so not only do they now not have to worry about a
portion of their income being taxed at twenty four percent but they essentially saved themselves from
having to pay any taxes at all on ten thousand dollars of their total ninety thousand dollars
in earnings believe it or not there are actually countless things that you can use as a tax
write-off i have a few things here in a list to give you an idea of some of the things that you
can use for example if you have a computer or a laptop that you're doing your trading or investing
on any desk or office supplies that you're using maybe you signed up for some paid courses or some
kind of mentorship if you're using different paid scanners and screeners any different platforms or
tools that you use that cost you money uh maybe you're a short bias trader and you do a lot of
short selling any interest that you pay on those short positions or any short selling borrow fees
a lot of general brokerage fees and even if you use a tax professional or an accountant
any fees that you pay them can actually be used as a tax write-off so these are
just some of the things that you can use to help reduce the amount of money that you owe in taxes
believe it or not there are quite a few others if you go on google and do a simple search for
some tax write-offs i'm sure you're going to find a much more detailed list but this should give
you an idea of some of the ways that you can help reduce your taxes and with that being said that's
going to be a wrap for this video thanks for watching i hope you enjoyed and learned something
if you did please make sure to give the video a like and subscribe to the channel so you don't
miss out on future videos in future lessons and of course if you're looking to learn a little
bit more about day trading swing trading or even long term investing please make sure to check out
the master the market programs which will be the first link down below in the description
but anyway thanks again for watching i hope you enjoyed and good luck with your
trading
you