Gamestop could leave some investors with a huge tax bill

#Gamestop #Gamestoptaxes #investingandtaxes

Uh we are continuing to see the rally in gamestop continue here to wrap up the week shares up more than 300 percent on the week as more retail investors pile into that name sparked by discussions in reddit’s wall street bets forum but that could carry some pretty large tax implications that first-time investors might be overlooking and for more on that i want

To bring in todd simmons bdo usa partner for more on that and todd i mean when we talk about this it was kind of interesting to see the spike in reddit or sorry the spike in gamestop shares and then followed by a couple of different spikes in other heavily shorted names in amc in bed bath and beyond and i wonder how much that might have been driven by investors

Moving their funds around which obviously would carry some important tax implications so tell us more sure and and thanks zach so i think what’s what’s most important is that many of these traders might end up with a big surprise in what their tax bill might look like i think so for many of them taxes are not going to really be something they’re thinking about in

Terms of uh of this trading activity um for most of them i’d imagine these are gonna they’re looking at short-term gains you know within hours or days and so short-term capital gains generally carry ordinary tax rates and right now those can top out for an individual at 37 percent plus there’s an additional net investment tax of 3.8 couple that with any potential

State and local income tax rates and you’re starting to get closer and closer to 50 so that’s something i’m not sure that many folks especially those new to trading are taking into account yeah and that’s something that we have seen a number of analysts sort of come forward on and warn that look don’t just take all of that money that you just gained and spend it

Away but if we’re making this sort of a segment about you know how you would advise some of these individual investors who are really getting in for the first time how much money do they set aside for taxes well make sure that you as you point out kiko that you’ve got the cash for it and as depending on what your rate might be and this is going to be very much

An individual issue so those at lower end of the tax bracket might be looking at 10 12 but those at the higher end are going to be at that 37 brackets so you really have to figure out what your potential exposure might be um in terms of what your your gain could be at that tax rate and that really is what you’re going to need to set aside you also are going to

Have to remember that if you’ve got these sort of spikes in income and now we’re in the first quarter in january you may have estimated tax payment requirements that you’ve got to take care of because you’ve got this well unplanned income for some in quarter one of 2021. so you’ve really got to come up with that cash now you’re going to be expected to buy the

Internal revenue service to make those tax payments now now that you’ve earned the income and todd i don’t want to make uh you know make light of maybe the other side of the equation here which could be some serious losses being racked up if you bought at the top and sold impulsively when you saw things dipping as we saw yesterday uh you know you can make the

Joke all write it off in tax losses but for maybe investors out there who did see that happen that’s also important to highlight here because you know it could be a loss that they’re not accustomed to gaining so talk to us about that well you certainly can offset your losses against other gains that you might have so let’s say if you have other trading activity

That have that has generated gains you can take these losses and offset them and for individuals you can deduct a small amount of capital gain but to the extent you can’t you should be able to carry that over so you do have opportunity to offset and that that may be useful to to many folks that are involved in trading um very frequently they’ll have those gains

Um with which to offset some of those losses that you’re talking about i wonder if we can just broaden out the conversation because i know we’re talking really specifics on the taxes but uh even watching what’s been playing out from a different perspective obviously because you advise a lot of clients on these issues what’s what’s your biggest concern when you

Look at what we’re talking about in terms of the profile of some of these traders how people are getting in on the market and trading so quickly from when you look at the perspective of what you specifically advise on what are some of the red flags that you see well inexperience is one of them and we want to make sure that when our clients are going to get into

A new endeavor and this might be a new endeavor for many of them we want to make sure they understand what the risks are what um what the plan expected outcomes might be and the unplanned um and so we’ve really got to make sure that they’re they’re taking into account all the things that they would see there um of course you know what i do tax is going to be at

The forefront and so we do talk to our clients about making sure that they’ve they are ready for any kind of unexpected or unusual tax bill um and also you know to to zach’s point earlier what happens if they’re going to have losses are they able to absorb those uh both from a tax perspective and also just from a financial perspective uh you know we’ve got a

Lot of clients that do sort of want to get into this space more and more and especially as it becomes more uh more visible and more in the news and it’s something that we really do want to give them a little bit of hand-holding around especially if they’re getting into it for the first time it is certainly a very important part of the conversation that has sort

Of been lost in all of the euphoria in the market so todd it’s good to talk to you today todd simmons video usa partner thanks kiko and we should we should point out uh that we will be speaking uh with vlad tenev the ceo and co-founder of robin hood markets so that interview is coming up at 1 30 pm eastern zak and i will be speaking directly to him with so many

Questions coming from investors as well as regulators so you’ll certainly want to tune in for that conversation

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Gamestop could leave some investors with a huge tax bill By Yahoo Finance