Edit: You are correct, turns out the so called "speculation tax" was canceled in 2017, however this only apply's if you are doing "normal asset management", so when the government say's you are doing to much transactions you become a speculative trader. If you are seen as a speculative trader you must pay 25% taxes on the profits, however you are unable to deduct losses. So you pay 25% on all profitable transactions you made, losses don't count. If you have a very profitable year then this is very favorable, if you are having a year where you are finishing just above break even you probably still make a loss if you take in account all the taxes you are going to have to pay.
You have to make a lot of money and live in an unfavorable state/city to pay 50% in the US. I live in CT so my top marginal rate is 6.99%. The top federal rate is now 37%. So 43.99% is the top rate I would pay. If you live in NYC then it's 3.876% city, 8.82% state, and 37% federal, so the top rate would be 49.696%. The only place worse than NYC in the US for income tax is CA with a top rate of 13.3%. Then the top rate is 50.3%. Not to mention all the property taxes, sales taxes, and hidden fees you pay on stuff. I have no clue how much of my money is going back to Uncle Sam, directly or indirectly, but it's a lot. I also pay a hefty tax to the SEC and TAF (FINRA) fees per trade. Last year I paid about $28,500 between the two. I did trade 176 million shares though. They're deducted before filing taxes (along with ECN/Platform fees) to give me my gross (pre-tax income).
The best course is if you are making so much monies trading is to consult a tax professional. It would be worth it what you pay them. It is hard to qualify as a trader with the IRS and full of pitfalls so, a tax professional suggested that one fold your trading with another small business. So, have multiple small businesses and now, you can deduct your trading expenses. That is the go around or loophole to get to deduct your trading expenses to reduce your taxes and perfectly legal. "You owe it to yourself to only pay what you owe under the law and not a penny more."
The OP asked "How do daytraders even make a living if they have to pay such a high tax rate?" I would point out that all the tax rates being pointed out here are marginal rates, some of which kick in at incomes over $500,000 ($600,000 married) and obviously exclude deductions. Most would consider that a bit more than "making a living". Effective tax rates on the first $200K, if we want to call that "making a living" level of earnings, are considerably lower and you'll never pay $100K in taxes on that first $200K no matter where you live in the U.S., not even close.
If this goes for every separate transaction and not just for the net result per year, I would argue this is probably the worst/most harsh tax environment for traders on the planet. Example: 5.000 trades with an average profit of USD 1.000 4.500 trades with an average loss of USD 1.000 Net result: USD 500.000 Tax: USD 1.250.000
All profits are taxed at 25%, so for example if in 1 year you make 100K in profits and 75K in losses (netting 25K) you have to pay 25% on the 100K, so then you end at 0. This excludes income taxes and other taxes, however if there is no profit after the 25% these taxes do not apply.
I see. I have not seen this version before. It is amazing how it seems every single country has been able to come up with their own unique tax rules within this area. It just goes to show that there is no internal logic to taxation. Under this system I figure I would end up with an effective tax rate of 100% every year corresponding to the situation you describe.
Not correct. Net result is 9.500.000 and taxes would be 2.375.000 as you made no losses. What you describe here was the abolished "speculation tax". You showed why it was quickly abolished. It was pure insanity,not to say criminal, and shows how people are treated in Belgium. In Belgium there is no legal certainty, taxpeople can do whatever they wish. They can even ignore the law.
The speculation tax we used to have has nothing to do with the 25% for speculative transactions. The speculation tax was a tax of 33% if you sold for a profit within 6 months of buying the stock. The 25% is a special tax for speculative transactions, if you are normally managing your assets meaning just doing a few transactions each year like most "normal" people do then you do not have to pay taxes on the profits, if you are however actively managing your assets and actively trading then the profits will be taxed at 25%. At least this is how my accountant explained it to me. And again, this is for Belgium.