So You Just Made a Lot of Money on GameStop. There’s One Catch: Taxes

If you’re among the army of retail investors who have made big money trading in shares of GameStop and other previously downtrodden stocks, one thing is certain: The tax man will come.

Trading by small investors caught fire in 2020, as boredom brought on by pandemic lockdowns combined with convenient, no-fee mobile investing apps like Robinhood.

In recent weeks, some of those investors, fueled by social media chatter, have driven up the price of GameStop, a brick-and-mortar video game retailer that has been losing money. Their reasons for buying the stock vary, but some wanted to thwart the big investors that were betting that the share price would fall — otherwise known as shorting the stock. Trading in other mundane stocks, like Blackberry and the AMC theater chain, has surged as well.

Some individual investors may already have notched tens of thousands of dollars in profits — even millions, if online boasting is to be believed — as share prices soared.

Here’s the thing: Those investors may have to pay hefty capital gains taxes. Those gains are on paper, of course, until the holder sells the shares, said Rhonda Collins, director of tax content and government relations with the National Association of Tax Professionals. And taxes for stock sales occurring this month wouldn’t be due until April 2022.

If those investors want to cash in on their gains, they may be caught off guard by how much they owe the government, accountants say. Unlike with employment income, there’s no automatic deduction of taxes.

GameStop vs. Wall Street

Let Us Help You Understand

    • Shares in GameStop, the video game retailer, have soared because amateur investors, starting on Reddit, have bet heavily on shares of the company.
    • The wave gained momentum in response to large hedge funds short selling GameStop stock — basically they were betting against the company’s success.
    • The sudden demand has driven up the share price from less than $20 in December to nearly $200 on Thursday. On paper, anyway.
    • It’s not just GameStop. Amateur investors have backed other companies that many big investors had shunned, such as AMC and BlackBerry.
    • This bubble around GameStop may force big investors to raise money to cover their losses, or dump shares of other companies.

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