How much trading profits can I spend considering tax reporting

Discussion in 'Taxes and Accounting' started by ljy18, Jun 4, 2019.

  1. ljy18

    ljy18

    I am aware that trading profits are taxed at a certain rate depending on the amount I make. Since tax is only reported once a year, but I can withdraw profits from my broker to my bank account more often that (Monthly, Weekly, even daily). How do I know the amount of money I am legitimate to spend without accidentally using up the tax portion?
     
  2. speedo

    speedo

    What are you trading? Stocks and futures are treated differently. You can withdraw anytime you want but it would be worth it to engage a CPA to determine exposure on uneven income streams.
     
  3. lindq

    lindq

    Assuming your account is not an IRA, you'll pay tax on your capital gains, whether or not you withdraw them. There is no limit to gains you can withdraw, or to the tax you may pay.
     
  4. ljy18

    ljy18

    I'm trading stock. I have done some research and watched videos about tax preparation software. They have very details explainations about how to import trading data and export the finalised tax documents at the end of the year. But it is not realistic to assume people only take profit once a year, in which case things become easy. So I hand in all the tax required, then the rest of the profits are my money to spend.

    But more likely, I will take profit monthly thoughout the year. So this is difficult to judge how much can I actually take out and spend. For example, when I make 10K in a trade, I cannot spend them all, otherwise, at the end of the year, Iwon't have sufficient money for tax.
     
  5. speedo

    speedo

    Robert Green CPA is a trading specialist. I recommend doing a consultation with him or one of his associates. You can do on the phone. Many traders use his service.
     
  6. ljy18

    ljy18

    Just a normal account. Yeah you are right, whenever a trade makes profit, the tax is triggered no matter I withdraw money or leave them in the broker. What I would like to find out is that in case I need to spend the profits, how do I measure the amount I can spend.

    Tax rate range is normally around 20%-50%. And the amount of profits from each trade are different depending on the position size. That's why it seems rather complicated to calculate the amount of money to take out and spend.

    Do you enter each trade to a preprogram tax software, so it tells you your up-to-date tax accumulation from your weekly or monthly statement, then you will have an idea of the amount of profits your can spend for the week or month

    Or, how do you normally deal with this ?
     
  7. ljy18

    ljy18

    Yeah, will check this out thank you, I think the other day I watch his presentation video for tax filing.

    By the way, I think this is like one of those things that every trader will have to deal with unless he/she lives in a place with 0% income tax. How do you deal with this ?
     
  8. lindq

    lindq

    It seems like you are under the impression that you are taxed (or not), on each trade.

    You are taxed at year end on your total capital gains. On your total winnings.

    If you started the year with 50K in your account, and ended the year with 55K, then you have 5K in gains on which you will be taxed.

    If you withdrew that 5K during the year, it makes no difference. It is still 5K in capital gains.

    Yes, you will need to report each trade, but it is your total gain or loss that interests the IRS.
     
  9. speedo

    speedo

    I have a CPA
     
    ljy18 likes this.
  10. ljy18

    ljy18

    I see
     
    #10     Jun 4, 2019