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.
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