Paying taxes in 2022: what you need to know

I was lured into the meme stock craze. What should I know?

The federal government comes to collect its share of your winnings. If you trade in a regular brokerage account (not a tax-advantaged individual retirement account, for example) and make a profit, you may owe capital gains taxes.

Short-term gains – those realized after selling stocks held for a year or less – are taxed at your ordinary income rate. The more favorable long-term rate comes into play when the shares are held for more than a year. (High-income investors will often owe an additional 3.8% “net investment income tax” on gains, regardless of how long they hold the stock.)

The losses offset the gains and up to $3,000 of net capital losses can be deducted from your ordinary income. Any remaining losses are carried forward to future years.

There’s a trap that might surprise many enthusiasts, known as wash sales. If, for example, you sold shares at a loss and then quickly bought them back, the initial loss cannot be used to offset other gains. Your brokerage should have sent you a Form 1099-B showing your gains, losses, and unauthorized wash sales.

If you quit your job to trade full-time, you could potentially qualify for what is known as trader tax status. Robert A. Green, managing director of Green Trader Tax, which specializes in tax planning for traders, said status could allow you to deduct some important expenses and enjoy other benefits. (You can also get more flexibility on wash sales, but now it’s too late to get it for 2021).

I continued to work from home. Can I write off certain expenses?

Probably not, unless you were self-employed, gig worker, or independent contractor.

Not even part of the phone bill? An office chair? “It’s always going to be a no, unless you have your own business,” said Cherie Mason, president of Cornerstone Tax and Financial Solutions in Denver.

About George Dailey

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