With the recent short squeeze mania surrounding Gamestop shares, many new investors browsing forums like wallstreetbets (reddit.com) found themselves in either a large winning or large losing positions. With this article, we hope to provide you with more info on what to do if you find yourself on either side of the equation as well as plan for the tax effect of both sides.
STONKS
Congrats! If you found yourself as one of the daring, diamond-handed investors that managed to make money on your shares (and cashed out before the crash) then you will likely have a short-term capital gain on the shares that you were able to buy and sell for a profit.
Tax Effect – Gain
Unfortunately, short term capital gains are taxed as if they are ordinary income. Because of this, if you find yourself having a substantial position of short-term gains, there are things you should consider before going into next year’s (2022) tax season.
Decrease your AGI
Since your income will be subject to ordinary income tax, the lower you can make your AGI, the less in taxes you will owe on your Gamestop earnings. Things you could do to decrease AGI include:
- Funding more to a traditional retirement account in 2021
- Funding an H.S.A. account in 2021 if eligible
- Accelerating expenses if you run a business or own rental properties reported on your personal return
Plan ahead for a potential balance due
If you had substantial earnings in the short term capital gains category, it might be a good idea to pay your taxes before the tax season to avoid underpayment penalties. For help with tax planning, be sure to reach out for help
NOT STONKS
You win some you lose some. If you were just a bit too slow on the draw this time and didn’t manage to cash out – fear not! At the very least, the losses that you realize on your shares will be able to be deducted as a capital loss.
Tax Effect – Loss
Taxpayers can take up to a $3,000 capital loss every year on their tax return. Something you can do if you have stock holdings that you didn’t expect to hold over the long term is to consider selling those short-term holdings in 2021. That way, the loss from the shares of GameStop would net against the gains of your other holdings causing a net neutral tax effect.
Conclusion
Whether you bet everything on GME, AMC, BB, or any of the other stocks getting media recognition in the past several weeks and had some form of share price movement, Booked Financial can help you navigate and properly plan for the tax effect to come.
For more information – get booked for a call with your Booked Financial Rep
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*The above article references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.*
*This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction*