I’ve been trading US stock options part-time on Webull. I started with $25,000 last month and managed to grow it to around $70,000, but then I lost roughly $55,000 of that. So, my total gain is only $15,000 now. Do I owe taxes on the $70,000 that I made and lost, or is it just on the $15,000 that’s left?
Any advice would be appreciated. Thanks.
If it’s all within the same year, then you owe taxes on the $15k gain.
Linny said:
If it’s all within the same year, then you owe taxes on the $15k gain.
I thought day trading was considered employment income and not eligible for capital losses?
Linny said:
If it’s all within the same year, then you owe taxes on the $15k gain.
I thought day trading was considered employment income and not eligible for capital losses?
Yeah, but your total “income” here is still just $15k. That’s the net amount you made from trading.
Linny said:
If it’s all within the same year, then you owe taxes on the $15k gain.
I thought day trading was considered employment income and not eligible for capital losses?
Day trading is treated as business income (which is different from employment income, though taxed similarly). It’s calculated based on the net result, so since you’re day trading, your losses aren’t capital losses.
If you’re trading amounts this big and aren’t clear on the tax situation, you might want to stop and look into safer investments like a broad ETF. That way, you don’t risk losing it all.
It’s the $15k that’s taxable. Only the net gain or loss for the year is what counts for taxes.
Violet said:
It’s the $15k that’s taxable. Only the net gain or loss for the year is what counts for taxes.
Usually, gains on options are realized gains, so you could have both gains and losses. But they’ll balance out if you have a net gain.
@Blaze
Right, I wasn’t clear enough. What I meant was you calculate the realized gains minus losses for the year, so here, it would be $70k in gains minus $55k in losses, leaving $15k.
Violet said:
It’s the $15k that’s taxable. Only the net gain or loss for the year is what counts for taxes.
Isn’t day trading considered employment income, though? Doesn’t that mean I can’t offset losses?
@Tobi
It depends on what you mean by “part-time.” The CRA doesn’t have a solid definition for what counts as day trading or a business.
If you’re worried you might be considered a day trader, you might need to plan to be taxed on the full gain, which could mean you’re losing money you didn’t actually take out.
When you make profits, pull them out of your trading portfolio, and try to keep less than 5% of your total investments in options. It’ll help you avoid losing everything and ensure you can pay taxes without reinvesting all your profits.
With that kind of volatility, you might not need to worry about taxes for long. A margin call could be in your future.
Take what you’ve got left and put it all on black in Vegas. That should fix everything, right?
You gained 60% in under a month—how’s that messing up? Unless you mean you made a risky move that worked out by luck.
Maybe take the money and leave before that 60% gain turns into a 100% loss.