Robinhood has revolutionized investing in the Stock Market with commission-free trading. Investing money in Robinhood feels more like a game than actually investing. Putting money to work is now a very mainstream thing to do. But like with most things in life, there is a second side to the world of investing, and it comes back every year: tax season.
So, it is only normal to ask yourself the common question: How do you pay taxes on Robinhood Stocks?
The Robinhood Platform and its support team are making this process easy for you. Every taxable event you make, like selling stocks or receiving dividends from stocks, mutual funds, or exchange-traded funds, is recorded until the end of the year. When you need your tax information for filing taxes, you’ll get everything from Robinhood you need. In this blog post, you will learn how to pay taxes on your Robinhood Stocks.
Do you like Robinhood and want to get the most out of it? Take a look at our other articles about Robinhood:
- Do You Have To Report Stocks on Taxes With Robinhood?
- Can You Link and Transfer Money from Paypal To Robinhood
- How To Reinvest Dividends On Robinhood – Investors Guide
- How do you disable Margin on your Robinhood Account
- When Does Robinhood Send 1099 Tax Documents To You?
How much taxes do you pay on Robinhood Stocks?
Your goal as an investor is to maximize your profit. Knowing how much taxes you pay before you do taxable events like stock sales is critical.The United States Tax Rules aren’t exactly easy to understand. But one thing stands out: The tax rules are designed to encourage holding your shares for the long term. All capital gains are either long-term gains or short-term gains. You can reduce or avoid paying capital gains taxes for your stocks with a few tricks.
Short-Term Capital Gains–Any profit from your transaction history of sales that you held for less than one year is called Short-Term capital gain. This profit is taxed with a higher tax rate similar to your ordinary income tax rate.
Long-Term Capital Gains– If you hold your shares in your Robinhood Account for at least one year before selling them, your capital gain will be taxed at a lower rate. This rate is between 0% and 20%, depending on your income. The exact tax brackets are changing over time.
For the calendar year 2023, the 3 federal tax brackets for Long-Term Capital Gains:
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | $0 – $47,025 | $47,025 – $518,900 | $518,900+ |
| Married filing jointly | $0 – $94,050 | $94,050 – $583,750 | $583,750+ |
| Married filing separately | $0 – $47,025 | $47,025 – $291,850 | $291,850+ |
| Head of household | $0 – $63,000 | $63,000 – $551,350 | $551,350+ |
Long-term capital gains tax rates for the 2024 calendar year
If you receive dividend payments throughout the year, these payments also add to your taxable income. The exact rate depends on the type of dividend. A dividend can be either a qualified dividend or a nonqualified dividend. More information on dividends can be found in our related guides “How To Reinvest Dividends On Robinhood” and “5 Reasons Why We Love Dividend Stocks for Long-Term Investment“.
Do you have to pay Taxes on Cryptocurrencies?
Trading cryptocurrencies is popular on Robinhood Crypto. Any cryptocurrency is viewed by the IRS as property to calculate the federal income tax.
They released some guidelines on that:
- Digital Assets
- IRS Notice 2014-21 (modified by Notice 2023-34)
- Frequently Asked Questions on Virtual Currency Transactions
You must report any gain or loss from selling cryptocurrencies to the IRS in your tax return.
Does Robinhood send you your Tax Documents?
Robinhood will provide you with all the tax documents you need to file your tax return to the Internal Revenue Service on time. This includes Form 1099-DIV, Form 1099-INT, 1099-R and Form 1099-B. You’ll receive these tax documents no later than February 16 in any calendar year. Robinhood combines most of the Form 1099 versions into a single PDF files, except for 1099-R for retirement income. If you did any cryptocurrency trades, you’ll have them included in the 1099, too.
All your tax documents are located in the Tax Center in the Robinhood app. You can easily access them like this:
- SelectAccount→Menu(3 bars) orSettings(gear)
- Go tothe Tax Center
- Select a form to review its details
- Form 1099-DIV – This form contains all your dividend payments.
- Form 1099-INT – If you received interest payments, they are contained in this form.
- Form 1099-R – If you have a retirement account with Robinhood, this form contains the information on that account.
- Form 1099-B – Any sold stocks or other securities are contained in this form, regardless of whether the sale created capital losses or a gain.
Robinhood will determine if you will need to file taxes. It will check your dividend income and transaction history for you. If you are not required to report taxes, Robinhood will not send a Form 1099.
Should you use Tax Software to calculate Taxes on Robinhood Stocks?
The short answer is yes.
Filing your taxes manually can be a very tedious task. Brokerage firms such as Robinhood try their best to streamline this process. Because Robinhood partners with Intuit TurboTax, Robinhood users can expect an easy process when using TurboTax as their tax software.
Your tax software is always up-to-date with the most recent IRS rules. It will give you valuable feedback and discover savings potentials from a tax perspective. It also knows about tax deductions and can lower the taxes you owe in ways you might not know about.
Besides the IRS rules, there are also state taxes you might have to pay. Your tax software is also able to take the state tax rules into account.
Can you import the Robinhood Tax Forms into your Tax Software?
Some well-known tax preparers allow you to import Form 1099 from Robinhood. This is also possible with Intuit’s TurboTax. Robinhood has a close partnership with Intuit and will always ensure importing tax forms into TurboTax works perfectly. TurboTax is a great way to simplify the process for filing your individual tax return.
Do I have to make Estimated Quarterly Tax Payments on Robinhood Stocks?
This is where investing can get more complicated. You should talk to a financial advisor and tax professional if your tax situation becomes more complex.
You must pay quarterly estimated taxes if you expect to owe $1,000 or more taxes on income that isn’t subject to withholding in a given tax year. Each quarter has a different deadline for the estimated quarterly tax payments. Failure to pay in the quarter can lead to a penalty when you do your tax report, increasing your tax bill unnecessarily.
You can think about it like this:
You get your wage from your employer. He will send the tax part of that wage to the IRS for you. You don’t have to pay estimated quarterly taxes on your earned wages. Since there isn’t anyone withholding taxes for your stock sales, you must do this job.
When selling a stock, you only pay taxes on the capital gain, not the entire amount you got from the sale. You can determine your capital gain by subtracting the cost basis (the amount you paid for the stock) from the sale price (the price you sold your stock at).
Unfortunately, there isn’t any automatism in Robinhood telling you exactly how much taxes you owe on a specific stock sale. Calculating and tracking your capital gain and owed taxes throughout the year is up to you. If you only invest a small amount of money and you won’t owe over $1,000, you don’t have to worry about quarterly tax payments.
To calculate your estimated taxes, look at the recent Publication 505 from the IRS.
Final Thoughts – How Do You Pay Taxes On Robinhood Stocks
Tax season is something the majority of people don’t want to think about every day. Knowing what the rules are helps you not just navigate your investment journey but control it.
You learned the differences between long-term and short-term capital gain in this blog post. You now also know how cryptocurrencies are treated. Then, we looked at how Robinhood makes filing your tax report easier when using tax software by sending you the necessary tax forms. The last part we discussed is estimated quarterly tax payments – a detail not mentioned in many places.
With the knowledge you gained from this blog post, you have the power to make better investment decisions. You can save a lot of money by knowing your situation and the different tax rates.
Disclaimer: The information in this blog post should not be considered tax advice or a replacement. They are solely provided for informational purposes. Please consult with a tax professional for any specific questions on your taxes.
