ok hypothetical scenario: i open up a 10k account and start daytrading, in about 4 months i have gains of 25k. now... am i required to file an estimated tax return on these gains, or can i wait till the end of the year for my 1099 and file then? how can i get the lowest tax rate on these gains as a daytrader?
i open up a 10k account and start daytrading, in about 4 months i have gains of 25k. now... am i required to file an estimated tax return on these gains? If you have a job where you have taxes deducted you can let it slide till years end. If this is you sole source of income than you need to file & pay your estimated taxes when more than $1,000 is owed. If you neglect to do it you can be hit with a penalty. It is not a big deal - most day traders are not aware of this. I was oblivious to this myself and had a a real big gain one year but lost it shortly into the new year. Because I did not make the quarterly payments I owed the IRS well into the 6 figures - not fun to owe on paper $ that came & went. That is why the IRS does this. https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes Disclaimer: I am not a tax expert. You are responsible for doing your own research to validate what I said - hence, the IRS link related to this was attached.
I'm no tax expert aside from being a tax payer but I know you can't pay all your tax at the end of the year. You're required to make estimated tax payments throughout the year, just like your employer does monthly withholding. BTW unless you're making steady money day trading already I wouldn't be worrying about tax issues at this point. You have a loooooooooooooong way to go.
Annualized out, it's 75k. I assume you will be trading futures as 10k is not enough for stock day trading which requires at least 25k. If futures you can go 1256, if stocks...wherever your income lands on the tax table for ordinary income. Any typically if it's your business, the IRS will want quarterly reporting and estimated payments.
No, you don't have to pay quarterly estimated taxes, only if you are still profitable at the end of the year, but that's not likely and worth the gamble because you will need that money to trade when you go into a drawdown. What? What'd I say now?
As long as you withhold 100% (110% if you made more than $150K) of your last year's income tax liability in advance you're good to go. Way easier than doing quarterly payments.