Almost half of US retail investors were completely new to the markets in the past year. They are young, mostly under 34. And they are aggressive: much more willing than those more experienced in stock markets to borrow to fund their bets, to make heavy use of options to fire up wagers on stocks, and to use social media as a research tool to find trading ideas. - Deutsche Bank đ€
Overview
Since the start of the pandemic, brokerages saw an influx of retail traders looking to supplement their incomes while working from home or to take advantage of downtime after being laid off. Instead of a market collapse last year, US indices notched one of its best years of all time, and the start of 2021 was no different. The 'meme-stock' frenzy to start the year turned many retail traders into millionaires in just a matter of days. With all this money being made, retail traders often overlooked the tax implications of their trades and found an unwelcome surprise from the taxman this April. Stories of traders owing excess of $20,000 in capital gains taxes alone kept popping up on social media. Unfortunately, brokerages don't do enough to educate their users about their tax implications.
We took it upon ourselves to step in and help traders with an automated app that directly connects to brokerages and estimates 2021 taxes in real-time. In addition to being a robust tax calculator, we flag trades that trip complex tax rules like wash sales. In the months to come, weâll build in additional functionality to simulate tax implications of trades and to auto-pay taxes to the IRS directly.
Why can't I just wait to calculate my taxes until next year's deadline?
There are two important reasons why you should have a real-time perspective on your capital gains tax liability.
If you made a substantial gain on a hot stock tip in a quarter, you may be required to make a good faith tax payment to the IRS by the quarterly deadline. There's no specific definition for 'substantial gain' so it's important to talk to a professional tax advisor about this. If you don't make your required payments, the IRS can hit you with an underpayment penalty, which is approximately 4% of the total amount that you owe. To calculate your good faith payment, you can follow the safeharbor rule, which allows you to pay up to last year's tax liability across four payments. For example, if your 2020 tax liability was $4,000, you can make four $1,000 payments every quarter, no matter how big your capital gains are.
If your buddy's stock tips are paying off well for you, it's good to budget your estimated liability so that you don't get sticker shock when filing your taxes! Imagine expecting a refund and then ending up with a $15,000 tax bill instead. Having a real-time snapshot of your estimated taxes can help you strategize your future trading decisions to best minimize the amount you owe.
How will Cshflow help me moving forward?
Our mission with Cshflow is to simplify your capital gains tax preparation and filing. We know how complicated and confusing taxes can be, especially when it comes to the nuances of capital gains. Here's what we plan to help you with moving forward:
Estimating your 2021 federal ST & LT capital gains tax for stocks & options
Detecting & warning you of wash sales
Notifying you of your account activity and upcoming payment deadlines
Simulating mock trades so that you can strategize tax implications before you trade
Incorporating additional investment sources into your estimated tax calculator (crypto, NFTs, collectibles, etc.)
Calculating your safeharbor payments
Estimating your 2021 state capital gains tax
Auto-paying the IRS for you
Placing your expected tax payments in high-yield accounts so you can earn a bit more
And more ... đ
How can I sign up for Cshflow?
You can sign up easily on our website using this link! Weâll give all of you early believers a special discount moving forward as well.
Thanks for reading!
Jaimin Desai - CEO & Co-Founder of Reconcile