Capital gains tax question? Do I pay tax on entire short position profit or net after losses?
So here's the situation I'm dealing with right now. I started trading stocks a few months ago, and I've been doing some short positions. In my trading account, I managed to make about $15,000 in capital gains from shorting some overvalued tech stocks. But then the market turned against me, and I ended up losing about $10,000 on other short positions that went badly. My question is pretty straightforward - when tax time comes around, am I going to have to pay capital gains tax on the entire $15,000 I made initially? Or do I only pay tax on the net profit of $5,000 after subtracting my losses? I'm trying to figure out how much I should set aside for taxes and don't want to get caught off guard. This is my first year dealing with significant trading gains and losses, so I'm completely clueless about how capital gains are calculated across multiple trades. Any help would be really appreciated!
19 comments
Join the conversation
Yara Campbell
You only pay tax on your net capital gains, which in your case would be $5,000 ($15,000 gains minus $10,000 losses). The IRS looks at your overall capital gains position for the tax year, not each individual trade. When you file your taxes, you'll report all your trades on Form 8949, and then the net result gets transferred to Schedule D. Your brokerage should provide you with a 1099-B form showing all your trades which makes this process easier. Just make sure all your transactions are properly categorized as short-term if you held the positions for less than a year.
0 coins
Ella rollingthunder87
•Thanks for the clear explanation! So just to make sure I understand correctly - my brokerage will send me a form showing all the individual trades, but when I actually calculate what I owe, I only pay tax on that $5k net amount?
0 coins
Yara Campbell
•Yes, that's exactly right. Your brokerage will send you a 1099-B showing all the individual trades you made during the year. You'll use that information to complete Form 8949 where you list each transaction. Then the totals from Form 8949 get transferred to Schedule D, where your gains and losses are netted together. The resulting net capital gain of $5,000 is what you'll be taxed on. Since these were short positions held less than a year, they'll be taxed as short-term capital gains, which is the same as your ordinary income tax rate.
0 coins
Isaac Wright
I went through a similar situation last year with trading gains and losses and was completely confused by all the tax forms. I ended up using https://taxr.ai to analyze all my trading documents and it saved me so much headache. The system automatically sorted through all my trades and showed me exactly what my net capital gains were. What's really helpful is that it showed me some wash sales I didn't even know about that would have affected my net calculation. The system explained everything in plain English instead of tax jargon.
0 coins
Maya Diaz
•How does it handle cryptocurrency trades? I have both stock and crypto transactions and it's been a nightmare trying to figure out the tax implications.
0 coins
Tami Morgan
•Did you still need to manually enter anything? My problem is I made like 200+ trades last year and I'm dreading having to input all that data somewhere.
0 coins
Isaac Wright
•It handles cryptocurrency trades really well actually. It recognizes the different tax treatment for crypto and generates the proper forms. I had some Bitcoin and Ethereum trades mixed in with my stock trades and it sorted everything correctly. For the manual entry question - no, that's the best part. You just upload your trading documents from your brokerage (like your year-end statement or export file) and it automatically processes everything. I had over 300 trades and didn't have to manually enter a single one. It even flagged some potential issues for me to review.
0 coins
Tami Morgan
Just wanted to follow up - I gave taxr.ai a try after seeing this thread and wow, it actually worked great! I uploaded my trading documents from Fidelity and it processed all 200+ of my trades automatically. It correctly identified my short-term and long-term positions and calculated my net capital gains. The explanation of wash sales was super helpful too since I had a few of those. Definitely using this again next year!
0 coins
Rami Samuels
If you're having trouble getting answers from the IRS about capital gains questions (I tried calling them 6 times about a similar issue), I'd highly recommend using https://claimyr.com to get through to an actual IRS agent. They have this system that basically waits on hold for you and calls you when an agent is ready. You can see how it works here: https://youtu.be/_kiP6q8DX5c I had some complicated questions about capital losses carrying forward that I couldn't figure out from online research, and getting through to a real person at the IRS cleared everything up in about 10 minutes. Before using this service I was on hold for over 2 hours before getting disconnected.
0 coins
Haley Bennett
•How does this actually work? Do you still have to call the IRS yourself first or does the service do that part too?
0 coins
Douglas Foster
•Yeah right. There's no way this actually gets you through to the IRS faster. They're deliberately understaffed to make it impossible to get help. Sounds like a scam to me.
0 coins
Rami Samuels
•You start by providing your phone number on their website, and the service calls the IRS for you. Their system navigates through all the IRS phone menus automatically and waits on hold in your place. When they finally reach a human IRS agent, you get a call back and are connected directly to that agent. No need to call yourself or wait on hold. Regarding the skepticism, I totally get it. I was skeptical too and thought it sounded too good to be true. But it's not about cutting the line or anything - you're still in the same queue as everyone else. The difference is their system is waiting on hold instead of you having to do it personally. It saved me literally hours of holding time.
0 coins
Douglas Foster
I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it anyway because I was desperate to talk to someone about a capital loss carryforward issue. The service actually worked exactly as described - they called the IRS, navigated the menu system, waited on hold for 1 hour 37 minutes (which I didn't have to sit through!), and then called me when they got an agent. The IRS agent I spoke with was super helpful and resolved my question about loss carryforwards in about 15 minutes. I would have never gotten this resolved otherwise since I can't sit on hold during my workday.
0 coins
Nina Chan
Another important point to consider with short positions - make sure you're accounting for any dividend payments you had to make while holding your short positions. If you shorted a stock that paid dividends during the time you held the short, you're responsible for those dividend payments, and they are NOT deductible against your capital gains. They're treated as investment expenses subject to the 2% AGI floor on Schedule A (if you itemize).
0 coins
Ella rollingthunder87
•Oh that's interesting, I hadn't thought about the dividend aspect. I did short a couple of stocks that might have paid dividends during that period. How would I know if I paid dividends as part of my short position? Would that show up somewhere specific on my brokerage statement?
0 coins
Nina Chan
•This information will show up on your brokerage statement, usually labeled as "substitute payments" or "payments in lieu of dividends." Your broker should track this for you, but it's good to be aware of it. These payments are essentially you covering the dividend for the person from whom your broker borrowed the shares for your short position. Unfortunately, these payments don't get the favorable tax treatment that regular dividends receive. They're considered ordinary income to the person who lent the shares, and an investment expense for you.
0 coins
Ruby Knight
Dont forget you can offset up to $3000 of ordinary income with capital losses too if u have more losses than gains in a year. And any unused losses can carry forward to future tax years. Really helpful if u have a bad year trading!
0 coins
Diego Castillo
•That $3000 limit is so outdated. It's been the same since 1978! With inflation that would be about $13,500 today but congress never bothers to update it. Typical.
0 coins
Logan Stewart
Just a heads up - if you're trading in a retirement account like an IRA or 401k, none of this applies. You don't report capital gains or losses for trades inside those accounts. Only matters for taxable brokerage accounts.
0 coins