Dayton Leong, an active trader with accounts at nine firms, used the Robinhood app to make a slew of trades last year. He enjoyed the free stocks he received for referring over a dozen friends and found it simple to trade on his phone.
However, he has recently ceased trading in his Robinhood account, which has approximately $238,000 in it, mostly in Tesla stock. Taxes, he claims, are a major factor.
Mr. Leong, 43, of Berkeley Heights, N.J., who also works as a property manager, says that Robinhood “puts all shares of a stock into one big bucket.” “My 2020 capital-gains tax haunts me.”
With tax bills due in 2020, a slew of new retail traders are realising that it can be difficult, if not impossible, to make tax-saving moves on new brokerage platforms like Robinhood, Webull, SoFi, Uphold, and Public.com. Some states prohibit trading in tax-advantaged retirement accounts such as IRAs. Traders may also have difficulty tracking their “wash sales,” which reduce tax benefits if they buy a stock within 30 days of selling the same stock at a loss.
Robinhood provides simple tax saving techniques
The most perplexing aspect for investors like Mr. Leong is that, despite their sophisticated technology, the new platforms do not make it simple to implement a tax-saving technique known as “specific-lot identification.” Investors use it to reduce their taxes, sometimes significantly, by deciding which shares to sell if they bought lots at different prices and aren’t selling all of them.
Traditional brokerage firms provide the option of selling specific lots. Webull, SoFi, Public, and Uphold, on the other hand, do not allow it, and Robinhood makes it difficult. This statistic astounds professional money managers.
“I think it’s ridiculous. Taxes are a significant component of investment returns, and it is an area over which investors have some control, according to Bill Mulvahill, a CPA and money manager at Trailhead Planners in Minneapolis.
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