Should I set aside money per profitable trade or use P/L to calculate my tax burden?

So I started day trading pretty consistently about 7 months ago and I'm trying to figure out the smartest way to handle my taxes. I'm making decent profits and I know Uncle Sam is going to want his cut, but I'm not sure if I should be setting aside a percentage from each profitable trade I make or if I can just use my overall profit/loss statement at the end to calculate what I'll owe? I'm using ThinkorSwim and I have about 270 trades so far this year with a net positive. I've heard some people say to set aside 30% from each win, but then again my P/L statement shows everything anyway. Just trying to avoid a nasty surprise come tax time. I also have a regular W-2 job if that matters for the overall tax burden calculation.

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20 comments

Nia Johnson

•8M

You should definitely be setting aside money for taxes, but you don't necessarily need to do it after each individual trade. What matters for tax purposes is your net P/L at the end of the trading period. The best approach is to keep track of your running P/L and set aside a percentage (typically 25-35% depending on your tax bracket) of your net profits periodically - maybe weekly or monthly. Remember that trading profits are typically subject to short-term capital gains tax, which is taxed at your ordinary income rate if you're holding positions less than a year. Since you also have W-2 income, your trading profits will stack on top of that income, potentially pushing you into a higher tax bracket. You might want to make quarterly estimated tax payments to avoid underpayment penalties.

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Nia Johnson

•8M

Quarterly estimated payments are a good idea if you expect to owe more than $1,000 in taxes beyond what's withheld from your W-2 job. You can calculate them based on your running P/L at the time each quarterly payment is due. If you have a big losing month after making a payment, that gets factored into your next quarterly calculation. The tax system really only cares about your net P/L for the entire year, but the quarterly payments help you avoid a large tax bill and potential underpayment penalties. If you overpay, you'll get it back as a refund when you file.

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Mateo Lopez

•8M

I struggled with the same thing when I started trading more actively! I found this tool called taxr.ai (https://taxr.ai) that's been super helpful for keeping track of my trading tax situation. It analyzes your trade history and helps calculate estimated tax payments. Before finding it, I was stressing every time I had a big winning day, trying to manually calculate what to set aside. Now I just upload my trading statements and it gives me a running estimate of my tax liability based on my actual P/L. Takes the guesswork out of it, especially with so many trades to keep track of.

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Mateo Lopez

•8M

Yes, it works with crypto trading as well as stocks. You can upload statements from multiple platforms and it consolidates everything to give you a complete picture of your trading activity across different asset classes. The accuracy has been really good in my experience. What sets it apart from basic calculators is that it factors in the specific tax treatment of different types of trades and can identify wash sales and other complex situations that affect your tax liability. My actual tax bill last year was within about $200 of what the tool estimated, which was way better than my previous attempts at calculating it myself.

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Ethan Davis

•8M

Just wanted to follow up about taxr.ai that I asked about earlier. I decided to try it out and it's actually been really helpful! I uploaded my last 6 months of statements and it identified several wash sales I wasn't even aware of. The tax estimate it gave me seems much more realistic than what I was calculating on my own. It also breaks down short-term vs long-term gains which helped me realize I should probably hold some positions longer for the better tax treatment. Definitely worth checking out if you're doing a lot of trades like me.

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Yuki Tanaka

•8M

If you're having trouble reaching the IRS with questions about trading taxes (I know I was), try using Claimyr (https://claimyr.com). I spent HOURS on hold trying to get clarification about how to handle some complex options trades for taxes. Claimyr got me connected to an actual IRS agent in about 15 minutes instead of the 2+ hour wait I was getting before. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent was able to clarify exactly how I should be reporting certain types of trades and what documentation I needed to keep.

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Yuki Tanaka

•8M

It uses a system that continually redials and navigates the IRS phone tree automatically until it gets through to an agent. When it does, it calls you and connects you. No line cutting - it's just automating the tedious process of staying on hold. They definitely connect you to the actual IRS - not to random tax experts. The person I spoke with was clearly an IRS employee and was able to access my tax records when I provided my information. I was skeptical too, but it's legit and saved me hours of hold time.

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MidnightRider

•8M

I have to admit I was completely wrong about Claimyr. After being skeptical I decided to try it anyway because I was desperate to sort out a question about reporting my options trades correctly. It actually worked exactly as described - got me through to a real IRS agent in about 20 minutes instead of the 3+ hour wait I had tried before. The agent confirmed exactly how I should report my options spread strategies and cleared up my confusion about wash sale rules with certain trading patterns. Saved me potentially thousands in incorrect reporting. Sometimes it pays to be wrong!

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Andre Laurent

•8M

You're absolutely right about wash sale rules - that's a crucial point I should have mentioned. I keep track of what I sell for tax-loss harvesting and make sure not to rebuy the same or substantially identical securities within 30 days before or after the sale. For active traders, this takes more careful planning. I actually switch to trading different but correlated stocks/ETFs during that 30-day window. For example, if I take a loss on AMD, I might trade NVDA during the wash sale period instead. This way I can still trade in the same sector without triggering wash sale rules.

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Nia Johnson

•8M

Mark-to-market can be beneficial but comes with specific requirements. It lets you treat all trading gains/losses as ordinary income (avoiding the wash sale rules), and you can deduct all trading expenses. However, you must qualify as a "trader" in the eyes of the IRS (frequent, regular, continuous trading), make the election by the due date of your previous year's return, and once elected, you can't easily go back. It's best discussed with a tax professional who specializes in trader taxes before making this decision.

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Molly Chambers

•4M

As someone who's been through this exact situation, I'd recommend a hybrid approach. I set aside money monthly based on my running P/L rather than after each individual trade - this smooths out the ups and downs and is much more manageable with 270+ trades. Here's what I do: At the end of each month, I calculate my net trading profit for that month and set aside 30-35% (accounting for both federal and state taxes plus the additional Medicare tax on high earners). I keep this in a separate high-yield savings account so it's earning something while waiting for tax time. The key thing with day trading is that virtually all your gains will be short-term capital gains taxed as ordinary income. Since you have W-2 income too, your trading profits stack on top, so you definitely want to be conservative with your set-aside percentage. Also, start making quarterly estimated payments once your trading profits hit around $1,000 for the quarter. The IRS gets cranky if you don't pay as you go, and the underpayment penalties aren't worth it. I learned that the hard way my first profitable year!

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