It’s Tax Season – Do You Earn or Owe Money?
It’s that time of the year again, time to collect all of your financial forms from the previous year and file your taxes. You most likely received these forms in the mail or in your email inbox; probably buried between all of the junk emails collected day after day. These forms consist of your W-2(s), 1098(s) – if you paid mortgage or student loan interest, and your 1099(s) – dividends, stock trades – profits/losses, interests, etc.
If you are like me and work for a company where you are provided a W-2, your taxes are relatively simple and you are probably looking forward to your tax return in hopes for a little extra cash! Unfortunately for me, I was a bit surprised, not with the actual tax return but the fees I incurred to file it.
My 2015 File vs. My 2016 File
Last year, filing for 2015, I used TurboTax and filed for FREE (it was fantastic). Unfortunately, due to my relocation across the country and I had to file two separate state returns, one for California and for New Jersey, I wasn’t able to e-file or file online. I figured no big deal, I will go into an H&R Block, file in person, and get a chance to ask some questions to ease my filing in the future. After the account and I went through what I was going to get back, it came time to talk about the cost to file. I quickly realized the costs of filing my tax returns for 2016 was no longer FREE!
The Differences between 2015 and 2016:
- I no longer had a 1098 Form, a form for when you pay student debt or mortgage interest, which increases your return.
- Two state returns for 2016, W-2 for both New Jersey and California.
- Filed a 1099-INT – Ally Bank Account Interests Accumulated
- Filed a 1099B – Sold Stock for a Profit
What I Learned From Making a Profit
After using Robinhood (Commission Free Stock Investing App) I started to get more and more comfortable with buying stocks. I stuck to the buy and hold mentality and would wait for a pull back before I bought stock. After building a solid portfolio, I wanted to put some of the knowledge I learned into practice and applied some technical analysis to my investing strategy.
I wanted to learn what it is like to buy and sell shares in a short period of time, so I sold some shares for profit. Unfortunately, I didn’t dedicate enough time to buying and selling stock and ended up with an overall gain of roughly $100 selling a few shares. I thought not bad for learning the game, but what I didn’t realize was the fees that were soon to follow come tax season.
How My $100 Quickly Turned Into a Loss of $30
- Since I bought and sold the same stocks within a 12 month window, I was subject to short term capital gains tax, roughly 20-25% depending on your tax bracket.
- Since I bought and sold stock, I had to file a 1099B form with H&R Block. This 1099B form costs roughly $100.
The combination of these two costs above totaled around $130, which put me in the hole for $30. Overall, I don’t regret my experience only making a small profit and losing after tax preparation fees and capital gains. The lessons learned are invaluable and only make me more aware of what lies ahead.
If you are like me and interested in buying and selling stocks within 12 months.
- Expect to pay short-term capital gains
- Expect to pay fees when it comes time to file your taxes, unless you have an accountant who files your taxes for free, in which case you should give them a big THANK YOU!
- When filing your taxes shop around, use services like Turbotax, H&R Block, and others.