Robinhood Taxes Explained
TABLE OF CONTENTS
Key Takeaways:
- In general, taxpayers will be required to file Robinhood taxes any time they make a sale or trade of digital assets, such as ETFs, stocks, or cryptocurrencies.
- Short-term capital gains in which the asset was owned for less than one year will be taxed at the tax rate of the taxpayer’s regular tax bracket, whereas long-term capital gains in which the asset was owned for one or more years will be taxed at 0%, 15%, or 20%, depending on their tax bracket. Capital losses of up to $3,000 can be deducted from their taxable income.
- Robinhood will send a consolidated 1099 tax form to customers who have earned more than $10 in interest or dividends, sold stocks, crypto, ETFs, or options, and received an income of more than $600. Otherwise, taxpayers are responsible for filling out and filing 1099 forms on their own.
- Investors who expect to owe $1,000 or more in Robinhood taxes for that tax year will be required to make quarterly estimated tax payments using IRS Form 1040-ES, Estimated Tax for Individuals.
What Are Robinhood Taxes?
Robinhood is an online platform allowing commission-free stock trading and investing, so it may be unsurprising that, just like other types of investments, taxpayers in the U.S. are required to report their taxable cryptocurrency transactions to the Internal Revenue Service (IRS).
This platform makes it easy to purchase small portions of Robinhood securities with no brokerage fees, making it a great option for beginner investors as long as they are aware of their responsibility to report Robinhood tax information when filing their tax returns.
What Robinhood Activity Is Taxable?
It is important that taxpayers don’t make the mistake of failing to report their transaction activity from Robinhood investments because they haven’t withdrawn the funds to their bank account. Generally, taxpayers must report information to the IRS any time they sell an ETF, stock, or cryptocurrency, as they may owe taxes on that transaction. This information can be reported to the IRS using tax form 1099.
Capital Gains and Losses
The tax rate for Robinhood investments depends on the taxpayer’s annual income, their federal tax bracket, and how long they held onto the investment. Capital gains tax can be classified as short-term or long-term gains.
Short-Term Capital Gain
- Robinhood crypto owned for less than one year
- The investment is taxed at the same rate as the income tax bracket
Long-Term Capital Gain
- Robinhood assets held for a year or longer
- The tax rate is lower than the tax bracket rate, at a percentage of 0%, 15%, or 20%, depending on the tax bracket
Capital Loss Deduction
Capital gains taxes are only owed to the IRS or a local or state government during a situation where the taxpayer earns profits selling their cryptocurrencies because they sold the stock for more than the initial investment amount. If the taxpayer experiences net capital gains losses, in which they sell their investments for less than what they initially paid, they can deduct up to $3000 from their taxable income.
How To File Robinhood Taxes
Tax Forms
Robinhood taxes are reported to the IRS using 1099 tax documents, but depending on the type of trades taxpayers make, there are different types of 1099s that they are responsible for filling out and filing their tax returns.
Some of the common Robinhood 1099 forms include:
- 1099-B, Proceeds From Broker and Barter Exchange Transactions
- 1099-DIV, Dividends and Distributions
- 1099-INT, Interest Income
- 1099-NEC, Nonemployee Compensation
Will Robinhood Issue A 1099 Tax Form?
Robinhood may send taxpayers a consolidated 1099 form if, during the tax year, they earned more than $10 in dividends or interest, sold stocks, crypto, ETFs, or options, and received more than $600 in miscellaneous income.
However, do not depend on Robinhood sending all of the required forms. The taxpayer is solely responsible for ensuring all of their tax filing regarding their digital assets is reported correctly using 1099 forms.
If taxpayers did not sell any digital assets and there were no dividends made on those investments, they would not have to report this information to the IRS.
On the other hand, taxpayers who made less than $10 in dividends or interest, or less than $600 in miscellaneous income, are still required to report this income to the IRS, even though Robinhood will not issue a 1099 form.
If you are unsure about which tax forms you need to report your Robinhood money, consulting with a tax professional who is experienced in tax preparation for crypto currency business activity and options trading is an excellent strategy to ensure your protection from IRS penalties and lower your tax bill.
Filing Due Dates
Most investors of digital assets will be required to report their Robinhood investment income from that tax season by the regular Tax Day deadline of April 15th. However, investors who expect to owe over $1,000 in Robinhood taxes must file quarterly estimated taxes.
The due dates for quarterly estimated tax payments are:
- April 15
- June 15
- September 15
- January 15
Taxpayers who fail to make estimated quarterly tax payments will be subject to IRS fees and penalties, so it is important to keep track of their earnings to avoid these punishments.
Quarterly estimated taxes can be configured using the tax document 1040-ES, Estimated Tax for Individuals, but if you need help with these calculations, it is beneficial to consult with a certified public accountant (CPA) to ensure your tax obligation is met.
If you need help reporting your Robinhood income using a 1099 form, consulting with a tax professional is always an excellent option to help you ensure you are doing everything right and saving money wherever possible.
The tax pros at Ideal Tax are here to help you navigate all things taxes, including tax relief, clarifying tax filing rules, analyzing your accounts, determining your tax responsibility, and searching for any way you can save money on taxes. Schedule a 100% free initial consultation at zero risk to get answers to all of your questions regarding taxes.
Luis serves as the Director of Operations for Ideal Tax, overseeing a multifaceted team including case management, tax professionals, document specialists, customer support, training, and development.
